LEASING for a WIND FARM Dennis Stein Farm Management Educator MSU Extension 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.
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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
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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
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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
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ONSITE DATA
Anemometers Research Facilities Terrain Neighborhood Existing Turbines Data, Data, Data
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Who All Gets Involved Wind Developer State Government Local Government Federal Agencies Community Groups & Activists Environmental Organizations & Activists General Public
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Regulations Sighting Visual & Noise Wildlife Impact Development Stages County / township Zoning? Safety? Synchronization with Power Grid Property Tax
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The Developer’s Dilemma:
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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
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Property Line Setback 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_______________ 15
Land Development Sterilization Issues:
144.86 acres 16
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Property Line Setback Half Section Land With 3 Times Turbine Height 1.5 mW Turbines
Set-Back Area
Maximum 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
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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
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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
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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
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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
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Lease Terms (cont.) Landowner Termination Rights Default and Forfeiture Clause
Time
needed to create a default (60 days?)
Lessor to hold and become owner of improvements Require lessee to indemnify landowner for lessee operations
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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)
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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
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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)
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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
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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
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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?
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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: Evaluation phase, 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
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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 only
Total 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
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Estimated Gross Revenue With $10 REC/Green Credits turbine efficiency MW
spin gross MW time
$/MW Electricity
$ Energy only
Total 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
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Decommissioning 4 - 5 feet below grade? 400 cu yds Performance bond for 1.5 x cost of removal 180 days
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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
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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 1. Landowner groups often can develop superior contract arrangements 2. 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 inflation 4. Be sure that you do not give your rights away in the agreement for free 5. Calculate the land that will be lost or that will now have development restrictions 1. Tile 2. Irrigation 3. Development for homes 6. You can choose to not have any surface development on your land 7. You can choose to not lease your property at all 44
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Do oil and air mix?
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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:
[email protected] Web Page: http://www.msu.edu/user/steind
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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
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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
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Ice Setbacks and signage can help mitigate potential hazard
Huron Wind Farm, Tiverton, Ontario
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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
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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
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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 Wind Farm Tiverton, Ontario
Photography by Winton Dahlstrom
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To have an impact on zoning…
Get involved! Go to meetings, talk to commissioners or planning board
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Wind “Rights” Sterilization Issues:
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Property Line Setback Half Section Land With 1.5 Times Turbine Height 1.5 mW Turbines
Set-Back Area
Maximum Turbines = 11 57
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