NorthGowerWindTurbines

November 17, 2009

Advice for land owners re: wind turbine leases. Don’t give it all away for crumbs from the table.

BE CAUTIOUS WHEN LEASING FARM’S ENERGY RESOURCES, EXPERT ADVISES

Penn State College of Agricultural Resources News Release


The following inquiry was forwarded to Glenn R. Schleede, Energy Market & Policy Analysis, Inc. who has written many reports on wind “farm” economics and Mr. Schleede’s response is below. It contains some excellent advice for landowners considering leasing their land to wind developers. (Email addresses have been removed so spammers won’t pick them up). The landowner wrote:

“Myself and many other land owners have been contacted by wind farm developers since spring. Our land is located in the towns of Ellenburg and Clinton in the county of Clinton in the state of New York. I have been reading a lot about wind energy on the web and seem to think we would as a land owners would benefit from such a project and also the town,county and school districts. The companies that have approached us are: GE & Tamarack, both are working together for Orion. Then there is Atlantic Renewable Energy and Zilkha. Do you have any good or bad information about these companies? Also what would be considered as a good amount up front for signing a land lease contract and what would be a good amount per megawatt per year for our location? They have offered us $1,000.00 for signing and minimum payments of $3500 per year per 2.0 megawatt turbines which goes up every year with a 30 year total payment of $158,000 for minimum payments. They will also pay royalty payments of 4% on the first 20 years and 5% next 10 years. I appreciate any help you can give me. Thank You.”

[Webmaster note: both towns mentioned now have wind “farm” proposals by Noble Environmental Power]

Mr. Schleede’s Suggested Response to The Landowner:

1. In fairness, your correspondent needs to know that, after looking in detail at the costs and benefits of wind energy during the past 4 years, I am highly skeptical about its merits. The reasons for my skepticism are summarized in the paper that I am attaching. 2. However, I would (and have) conceded that “wind farms” can have economic advantages for landowners who allow wind turbines on their property – provided that the landowners receive fair compensation, recognize the risks and disadvantages as well as the advantages, and have adequate protection in the contracts they sign. 3. The first thing that your correspondent should do is retain a GOOD contract lawyer who will work to protect his interest in his dealings with wind developers. Ideally, he would join with other landowners in retaining a lawyer so that he can minimize his legal costs. He needs to understand that:

a. “Wind farm” developers are very aggressive, highly skilled in dealing with landowners who are not familiar with the particular deals offered by the developers and who, therefore, are vulnerable.

b. “Wind farm” developers and owners have substantial financial resources available to them (because “wind farms” are such lucrative investments FOR THEM – as detailed on page 16 of my paper on Wind Energy Economics in West Virginia which I will forward to you as an attachment to a separate email). These financial resources permit them to retain lawyers, “land men” and consultants who can deal aggressively with landowners, local government officials, and those who would be adversely affected by a “wind farm.”

c. The rental payments and “royalties” being offered appear to be very low compared to those being paid elsewhere. (More on this later.)

d. There are serious risks that he and other landowners need to consider (more below).

4. I have not looked in detail at specific offers from developers but I will provide below the email addresses of three people who have done so. I do not know whether these people would help but it may be worth contacting them. If your correspondent wishes to provide me his email address, I will pass it along to the three people.

5. Among the risks that he needs to consider are the following:

a. The organization that ends up owning the “wind farm” and who will be making the rental or royalty payments is almost certain to be a single asset LLC; i.e., a Limited Liability Company that has no assets other than the “wind farm.” This could be a problem if the LLC goes into bankruptcy.

b. The huge tax benefits that are available to “wind farm” owners occur in the early years of the “wind farm’s” life (i.e., 5-6 years for accelerated depreciation; 10-years for the wind “Production Tax Credit,” assuming it is reinstated.) The practical effect of this is that the incentive to sell or abandon the “wind farm” grows substantially as time passes, particularly if maintenance, repair and replacement cost grow.

c. No one knows how long wind turbines now being installed will last or their long-term maintenance, repair and replacement costs. None of “today’s” models have been in operation for even 5-years. (I’m not aware of any 2.0 MW wind turbines in commercial service.) Royalties and rents based on future wind turbine performance are speculative at best.

d. The cost of removing wind turbines, blades, towers, and tower bases and restoration of land are issues that need to be considered. In view of the risks listed above, probably the only way of assuring that money is available for that purpose is to require posting a CASH bond in advance that would be held by an independent third party in escrow. A cash bond held by the “wind farm” owner would likely be part of the assets available to all creditors if the LLC went into bankruptcy. A surety bond may be available only as long as premiums are paid. (To repeat, the landowners NEED LEGAL AND FINANCIAL ADVICE.)

e. Please have your correspondent contact the person at (removed) for some more guidance on legal consideration. This person and his neighbors were considering leasing their land for a potential “wind farm” and learned a LOT about the developers and their proposed contracts when they retained a lawyer to evaluate the proposed deal and negotiate with the developer on their behalf. Also, (removed) may be willing to share some of his experience with “wind farm” contract evaluation.

6. The rental/royalty payments your correspondent mentioned seem VERY low. For example:

a. Annual payments of $5,000 per megawatt (MW) seem to be more common and it appears that payments as high as $15,000 have been offered in at least one case. Please have your correspondent contact the person at (removed) for more information on rental payments.

b. Royalty payments dependent on future performance of the wind turbines have risk because that performance isn’t assured. Also, deterioration in wind turbine performance increases the chance that the owner will shut down one or more wind turbines that do not perform well or perhaps abandon the whole “wind farm.”

c. “Wind farm” developers have been known to overestimate potential future “wind turbine” output (i.e., the kilowatt-hours that will be produced). Sometimes they will base their claims on output achieved in winter months when winds tend to be strongest.

d. Also, he should keep in mind that “wind farms” are highly lucrative investments for their owners – particularly due to federal, state and local tax benefits. This suggests that he and other landowners shouldn’t be reticent about insisting on fair compensation.

7. Other comments on your correspondent’s statements. Your correspondent is right that he and other landowners “could benefit,” if he is thinking only in terms of payments he or they would receive. He needs to consider also:

a. What, if anything of value, he would give up. For example, some contracts offered by developers/owners apparently, in effect, give the developer full “air rights” to the property being leased. Some contracts may not even have ending dates. The landowner may be prevented from undertaking or permitting any other development on his or her property.

b. He should not be misled by the allegedly small “foot print” of the wind turbines. Allowances must be made for potential blade and ice “throw” which extends well beyond the small footprint. Substantial setbacks from roads, buildings, etc. are necessary

c. Noise or other environmental or ecological impacts (e.g., bird and bat kills) of the wind turbines – which have proven to be a great concern to some who live near “wind farms.” Some “wind farm” developers have sought “noise easements” so that landowners or their neighbors do not seek financial redress for lost property value.

d. Economic impact on others. As pointed out in the paper attached, the additions to monthly electric bills due to the higher costs of electricity produced from wind – which costs are often spread over all electric customers – generally overwhelm the amount of the rental/royalty payments received by landowners.

e. Whether the state or local government and school district will receive an economic benefit is highly speculative. Many state (including NY) and local governments have provided special property, sales or other tax reductions for “wind farms” under the mistaken impression that the “wind farm” will produce local or state economic benefits. Also, some local government officials have approved permits for “wind farms” in return for special payments or contributions from “wind farm” owners. Some such payments are “one time only” and generally are significantly less than the tax revenue foregone by the special tax breaks.

f. The US Department of Energy (DOE) and its National Renewable Energy “Laboratory” (NREL) have consistently overstated local and state economic benefits of “wind farms.” For example, most jobs during the relatively short construction periods are filled by non-local workers. There are very few permanent jobs. (I’ll send you a third email with an attached paper that describes the overestimates and errors in a recently released NREL “economic model” designed to estimate such benefits.)

g. Often local government officials do not take into account the added costs that will be incurred when a “wind farm” is permitted; e.g., road construction and repair (due to truck traffic during construction), police and fire protection.

h. “Wind farm” developers are especially aggressive in dealing with local government officials who often are unfamiliar with the issues presented and don’t have the resources to retain people who could help in their evaluations. In some cases, developers work “behind the scenes” to secure a local government official’s support before details of the project are made public and the implications understood. Once committed, a local government official may be unwilling to change his or her position. In some cases, local government officials have signed contracts to lease their land to “wind farm” developers and while retaining their position of the government body that approves permits. Ideally, local governments would abide by strong “open meeting” and “conflict of interest” rules so that the rights of ordinary citizens are protected.

Donn, I have “dashed” this off quickly since I assume your correspondent is eager for a reply. I have not proofread it so I hope you and he will allow for some mistakes and bad wording. Also, I’m sure that other things he should consider will occur to me when I have time for additional thought about his request. Please encourage him to, as a minimum, join with others and get a good contract lawyer to help them. My recent paper on “True Costs and Benefits of Wind Energy” is [not] attached. I’ll follow up with the other two emails that attach the other two papers referred to above.

Glenn Schleede
Round Hill, VA

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6 Comments »

  1. Thank you very much for the information provided! I was looking for this data for a long time, bit I was not able to find the trusted source.

    Comment by building solar panels — December 11, 2009 @ 6:57 am | Reply

  2. Glad this item was posted. I have just been contacted by Westar Energy to enter into a contract to lease our acreage in Ellsworth Kansas with substantially less cash incentives than those mentioned, with only one turbine proposed for 80 acres.
    seems like a lot of land tied up for forty years with small cash incentive.

    Comment by Norm Patino — February 15, 2011 @ 4:56 pm | Reply

    • Worse than the lack of money–and the amount paid to landowners is a drop in the bucket compared to what the coroporate wind developers are getting–are the conditions of the contracts in some cases. Many landowners are virtually giving away most of the rights to their property, including building of roads on the land, having to get permission to build new outbuildings or anything else, first right of refusal if you wish to sell…the list goes on. In Ontario, we’re being told that the industrial wind development is “helping the family far.” It’s not. This is the biggest business scam since Enron. Another “down” side iswhen the turbines go up and your neighbours start losing sleep, getting ill, and watch their property values decline, your community will change forever, and not for the better. If possible, see the documentary Windfall (it’s showing in NY this March, so is beginning to get showings). Best of luck to you, and congratulations for reading and learning, not just taking the wind developer’s promotion 100%

      Comment by northgowerwindturbines — February 15, 2011 @ 5:18 pm | Reply

      • @northgowerwindturbines
        well yes landowners are giving away rights! the gov’t has taken our rights away anyhow so get what money you can! we vs. business have almost nil rights.

        Comment by gem — May 21, 2012 @ 9:06 pm

  3. Is it typical for mineral owners who own none of the surface to be compensated in any way by a wind farm?

    Comment by Justin Clements — January 2, 2013 @ 11:54 am | Reply

    • No idea, that is a complicated question. More relevant is the need for compensation for property owners living near the wind power projects whose properties are now reduced in value.

      Comment by ottawawindconcerns — March 2, 2013 @ 7:44 pm | Reply


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