1

LEASING for aWIND FARM

Dennis Stein

Farm Management Educator

MSU Extension

1

MSU is an affirmative-action, equal-opportunity employer. Michigan State University Extension programs and materials are open to all without regard to race, color, national origin, gender, gender identity, religion, age, height, weight,

disability, political beliefs, sexual orientation, marital status, family status or veteran status.

2

2

Federal Wind Industry Incentives

Federal Tax Credits (choose one) 30% renewable energy production tax credit

on equip cost

2.1cents/kilowatt hour for up to 10 years

Renewable energy grants up to 30% of investment

3

Industry Incentives (cont.)

Clean Renewable Energy Bonds (tax credit bonds- equivalent to interest free loan) Bond holder receives federal tax credits not interest

Business and Industry Guaranteed Loans – $10 million max

Accelerated depreciation – 5 year

4

3

Industry Incentives (cont.)

Renewable Energy Credits – RECS or Green Tags Sold separately from elec. so producers

market environmental and elec benefits separately

1 credit for each MWh (1 megawatt hour) produced

1 MWh = 1000 kWh, avg family uses 800 kWh/mo

5

6

4

7

ONSITE DATA

Anemometers

Research Facilities

Terrain

Neighborhood

Existing Turbines

Data, Data, Data

8

5

9

Who All Gets Involved

Wind Developer

State Government

Local Government

Federal Agencies

Community Groups & Activists

Environmental Organizations & Activists

General Public 10

6

Regulations

Sighting Visual & Noise Wildlife Impact Development Stages County / township Zoning? Safety? Synchronization with Power Grid Property Tax

11

The Developer’s Dilemma:

12

7

How will you be compensated?

What are your payments for easements? One-time, up-front, or periodic?

What unit is used?

What are your lease payments? Per turbine, per megawatt, or a “royalty?”

What is the payment zone, pool, project

Definitions matter!

How will accuracy be verified?

Key Terms of Agreement

3 -Active Phases; Development –Construction – Operations –

Rates & type of compensation

Site selection- will I get a turbine?

4th Phase Re-powering or Decommissioning

14

8

Property Line Setback

15

Land impacted by turbine:- payment zone: turbine, 300, 500, 660 feet radius

- set back: turbine to turbine (1400 feet radius = 141.29 acres)

- set back: closest home (1400 feet = .265 miles)

- set back: other_______________

Land Develop-

ment Steriliza-

tion Issues:

16

144.86 acres

9

Property Line SetbackHalf Section Land With 3 Times Turbine Height

1.5 mW Turbines

Set-Back AreaMaximum Turbines = 4

17

PSYCHOLOGY of LEASING

- Landowner’s mind frame becomes a negotiator, a price maker – not taker

- Land man is paid by wind developer,

experienced negotiator,

well educated in his craft,

smooth talker

18

10

Psychology of Leasing

Landowner has the choice to say “No”

May not arrive at an agreement initially–OK – may take years

Use Dogged Determination

Good leases take time

and last a long time

19

Phases of wind farm development

1. Evaluation and Land acquisition phase Field representatives make contact with landowners and

secure property leases

2. Development phase Site is surveyed, developed, turbines installed

3. Production phase Turbines operational and produce energy

4. Re-power or Decommission phase

20

11

21

Five questions you must ask...

1. How long will agreement last?

2. What development rights am I selling?

3. What are your obligations under the

agreement?

4. How will you be compensated?

5. What happens when the project ends?

22

12

What are your obligations under the agreement?

Surface uses – what will be required to satisfy “non-obstruction” requirements?

Indemnity(!) Will increased insurance be required?

What about third-party waivers?

Property taxes?

Compliance with government programs (CRP, EQIP, WHIP)?

23

Lease Terms

Lease vs. Easement –

Should be a lease with a defined termination date

24

13

Lease Terms (cont.)

Landowner Termination Rights

Default and Forfeiture ClauseTime needed to create a default (60 days?)

Lessor to hold and become owner of improvements

Require lessee to indemnify landowner for lessee operations

25

Lease Terms (cont.)

Once turbine placed specify release of remaining land from lease or establish compensation for extra land held as part of the contract $ per acre per year (very important!!!)

Most favored lease clause so you have same terms as anyone else signing similar agreements be sure of the term of this clause (watch when this expires)

26

14

Lease Terms (cont.)

Be comfortable with every paragraph before signing

Get verbal promises in writing (most have a clause that states that all promises, presentations, written materials provided to the landowner are void and unenforceable)

Attorney’s advice at beginning and end

Take photos before Lessee’s operation begins

27

Lease Terms (cont.)

Landowner approve turbine location, roads, road material, power lines, related structures

Clearly state your rights to continue current uses of property

Establish the height and distance from turbines of any future new buildings you construct

Specify if trees can be replaced and what areas new ones can be planted

28

15

Lease Terms (cont.)

Tile repair: Your contractor or their contractor to do the work?

Owner right to approve lease assignment and original developer still liable to you if assignee defaults

Surface damages Paid for total market value of crop loss

Renter vs landowner -crop loss $$

Specify formula for crop loss calculation

Landowner approve cropland restoration plan

29

Lease Terms (cont.)

Once turbine placed specify release of remaining land from lease or establish compensation for extra land held as part of the contract $/acre (very important!!!)

Most favored lease clause so you have same terms as anyone else signing similar agreements be sure of the term of this clause (watch when and how this expires)

30

16

Lease Terms (cont.)

Be comfortable with every paragraph before signing

Get verbal promises in writing (most agreements have a clause that states that all promises, presentations, written materials provided to the landowner are void and unenforceable)

Attorney’s advice at beginning and end

Take photos before Lessee’s operation begins

31

Lease Terms (cont.)

Bond or irrevocable letter of credit No operations on site until bond to landowner

Insures funds available for land restoration, equipment decommissioning

$100,000 minimum per tubine

Provides security to pay all land damages

Review every 5 years and have provision to increase values as necessary

32

17

Lease Terms (cont.)

Bond or irrevocable letter of credit No operations on site until bond to township

or landowner is in place

Insures funds available for land restoration, equipment decommissioning

$100,000 minimum per turbine(inflation index)

Provides security to pay all land damages

Review every 5 years and have provision to increase values as necessary

33

How will you be compensated?

What are your payments for easements? One-time, up-front, or periodic?

What unit is used?

What are your lease payments? Per turbine, per megawatt, or a “royalty %?”

Definitions matter

How will accuracy be verified?

34

18

Financial Terms (cont.)

Operational Phase – Three Compensation Choices 1. One time payment

2. Fixed annual rent

3. Fixed royalty payment per KWH

4. Royalty % + % green payments

Be sure you have payments indexed that allows payment to track current values

35

Financial Terms

Three periods to receive income: Evaluationphase, Development phase, Operational phase

The lease is actually a sale of development rights – compensation should be adequate

Evaluation Phase – keep as short as possible –2 to 5 years (with ? year auto extension)

Charge high enough to provide incentive to either develop wind farm or terminate lease

$ _____ per acre/year , or $0,000 minimum /yr

36

19

Financial Terms (cont.)

Development Phase or Construction Period Limit to 3-4 years

Annual rental continues until power produced Type of crop to set annual rent as minimum

One time payment when turbine and other equipment installed - = + $10,000

Fees for roads, buildings, power lines (above and below ground)

37

Estimated Gross Revenue Generation from a Wind Turbine- no REC

turbine MW

efficiency spin time gross MW $/MW Electricity $ Energy onlyTotal Annual $

Revenues

1.50 35% 75% 3,449 $45.00 $155,216 3.0% $4,656.49

1.50 35% 75% 3,449 $45.00 $155,216 3.5% $5,432.57

1.50 35% 75% 3,449 $45.00 $155,216 4.0% $6,208.65

1.50 35% 75% 3,449 $45.00 $155,216 4.5% $ 6,984.73

1.50 35% 75% 3,449 $45.00 $155,216 5.0% $7,760.81

38

20

Estimated Gross Revenue With $10 REC/Green Credits

turbine MW

efficiencyspin time

gross MW$/MW

Electricity$ Energy

onlyTotal Annual $

Revenues

1.50 35% 75% 3,449 $50.00 $172,463 3.0% $ 6,208.65

1.50 35% 75% 3,449 $50.00 $172,463 3.5% $ 7,243.43

1.50 35% 75% 3,449 $50.00 $172,463 4.0% $ 8,278.20

1.50 35% 75% 3,449 $50.00 $172,463 4.5% $ 9,312.98

1.50 35% 75% 3,449 $50.00 $172,463 5.0% $10,347.75

39

Re-Powering okay but renegotiate

40

21

Decommissioning4 - 5 feet below grade?

400 cu ydsPerformance bond for 1.5 x cost of removal

180 days

41

What happens when the project ends?

After project term is completed, will the agreement provide for: disassembly and

removal of equipment?

restoration of grades and soils?

replacing vegetation?

What assurances are in place?

42

22

Considerations

Issues of condemnation power for transmission lines?

Spacing and setback requirements?

Standard terms of payment and audit privileges?

Insurance requirements?

Decommissioning indemnity funds?

43

Summary Comments

44

1. Landowner groups often can develop superior contract arrangements2. Be sure that you know how and for what you will be paid

1. Turbines, roads, power lines, transmission lines, met-towers, communication towers, power stations

3. Make sure payments are indexed to keep up with inflation4. Be sure that you do not give your rights away in the agreement for

free5. Calculate the land that will be lost or that will now have development

restrictions1. Tile2. Irrigation3. Development for homes

6. You can choose to not have any surface development on your land7. You can choose to not lease your property at all

23

Do oil and air mix?

45

Dennis Stein Farm Management Educator,

Michigan State University Extension

362 Green St., Caro, MI 48723

Phone: 989-672-3870

http://miwind.msue.msu.edu/

Email: steind@msu.edu

Web Page: http://www.msu.edu/user/steind

46

24

47

Low frequency Noise

More difficult to measure than audible noise

Can be a factor at greater distances

More complaints inside homes and at night

Measurement standard can be included as part of a zoning ordinance

48

25

Shadow Flicker

Caused by sun rising or setting behind the blades of turbine

Casts flickering shadows on nearby premises, can be an annoyance or distraction to residences

Can be dealt with via set backs, or shutting down turbines during brief periods of shadow disturbance during the day

49

Ice

Huron Wind Farm,

Tiverton, Ontario

Setbacks and signage can help mitigate potential hazard

50

26

Noise

Most wind turbines register about 50 decibels (refrigerator sound level) from 800 feet away

Zoning can dictate allowable sound level at property line or nearest residence

Known as a “Noise setback”

More restrictive in more urban areas – e.g. CA county has a 2 mile set-back for noise

51

Avian Impacts

Early wind installation at Altamount Pass, CA, in migratory bird path caused bird kills

1980s, 7,000 turbines, mountain pass, lattice towers –all problematic

Since then, environmental impacts are assessed when siting towers

Average today – one bird killed per turbine per year in U.S., far less than cats or car windshields

52

27

Visual Impact

Depends greatly on population of area and general aesthetics

Ugly or Beautiful?

Zoning can address number turbines in particular area, or what color they must be.

53

Setback from the Road

Huron WindFarm

Tiverton, Ontario

Photography by Winton Dahlstrom

54

28

To have an impact on zoning…

Get involved!

Go to meetings, talk to commissioners or planning board

55

Wind “Rights” Steriliza-

tion Issues:

56

29

Property Line SetbackHalf Section Land With 1.5 Times Turbine Height

1.5 mW Turbines

Set-Back Area Maximum Turbines = 1157