Author: Craig Memery
Contributor: Brett Dutton, Alicia Webb
Generally, there are three main types of agreement with a landholder. The first is an access licence agreement, which gives you access to the property to undertake studies, including wind monitoring. This type of agreement is relatively straightforward, and is usually negotiated before the feasibility stage. The second type is an option to lease agreement, in which the landholder agrees to the possibility of negotiating a lease agreement in the future. The third is known as a lease agreement and is a contractual agreement in which the landholder agrees to have a wind farm on their property for the life of the project.
Discussions with landholders usually begin during the pre-feasibility stage, as you work out the landowner's general attitude towards wind farms. Negotiations will follow at the end of the pre-feasibility stage because you will need to erect a wind monitoring mast. An access licence agreement usually covers wind monitoring and is usually sufficient for the feasibility and planning stages.
Although construction of the actual wind farm is still some way off, it's important to start discussing the terms of an eventual lease agreement (leasing the land where the turbines and other infrastructure will be located) as early as possible. You may need to obtain legal advice regarding the issues and lease conditions in this article. All landowner negotiations should note specific requirements the landowner may have for the use of their land. For example, preferred site access locations or exclusion zones based on farming or other land use requirements.
Main topics covered in this article include:
Access licence agreement
You can put this type of agreement in place early on, so you have access to the property for conducting further studies. An access agreement doesn't normally lock in the landholder or the developer to a lease agreement for a wind farm. Access licences are usually only a few years in length.
Option to lease agreement
The detailed planning stage can involve quite a lot of expense and risk. Before you invest in the various studies, you should have a contract, such as an option to lease (or the lease agreement) with all key landholders.
The option to lease locks the landowner into an agreement whereby the terms and conditions of the eventual lease are discussed and agreed in advance, but the lease fee is not paid until you are certain the project is going ahead on that land. This allows you to secure the land (by making a small payment) without exposing you to full lease fees from the feasibility phase.
All parties to contracts will need legal advice in relation to the terms and wording of any contracts and the business arrangements of the your project will need to be firmed up to allow this to go ahead.
Option period
The option period allows the developer to go ahead with the often expensive and lengthy development and planning process, with the certainty that they have the landowner's consent to construct the wind farm at the site, providing it is suitable and all other approvals are granted.
An option to lease typically includes an option period of three to five years from the date of signing the agreement. During this time the developer can choose to execute the lease or not. At the expiry of the option period the contract is nullified if not executed by the developer. The developer is under no obligation to execute the lease, in case the wind farm does not proceed to construction.
Option fee
The landowner is limited in what they can do with their property during the option period. For example, they may not be able to sub-divide or build on their land, and if they sell the land the option and all conditions remain attached to the property. Also, in negotiating the terms of any contracts, the landowner will usually incur legal costs, which may be in the thousands of dollars.
For these reasons, the landowner is usually paid a negotiated option fee at the start of the option period.
Lease agreement
An effective lease agreement will grant a wind farm developer the conditions they require to develop and build a wind farm on the site, while protecting the interests of the landowner. Other common terms of lease agreements for wind farms include:
Lease period
Wind farm leases are normally for 20 to 25 years, in keeping with the design life of wind turbines, and may include an option to extend the lease by a further five to 25 years. While the lease should start before construction, a landowner may agree to delay rent payments until the wind farm starts generating revenue from energy sales.
Rental
Rent is usually paid to landowners based on a yearly payment for each wind turbine on their land. Often the landowner will expect a higher value each year. These payments are usually:
- fixed, and in the range of $5,000 - $10,000 per turbine per year
- indexed (increased each year) in line with CPI.
There are other options for calculating or indexing rent however, such as:
- basing annual payments on a percentage of the wind farm's revenue from the sale of energy and RECs, with a fixed minimum amount to protect the landowner from exposure to risk of low revenue. For example, the landowner may be paid the higher value of:
- 2% of the revenue from wind turbines on their property or
- $5,000 per turbine in a given year.
- indexing rental payments in line with increases in the average wholesale price for energy.
Negotiating rental
It's important both parties consider the value proposition for the landowner when negotiating rental amounts.
Benefits for the landholder include:
- wind turbines have a very small footprint, especially considering the rental return provided.
- wind turbine lease payments represent drought-proof income.
- wind farming is compatible with existing operations (almost no negative impact on grazing operations once the wind farm is operating, and minimal impact on cropping operations).
- the access tracks, gates and fences built for wind farms are usually paid for by the developer and improve access for the landowner.
Issues for landowners include:
- potential restrictions on the sale or subdivision of land throughout the lease period.
- potential restrictions in terms of land use. For example, lease conditions may preclude extensive tree plantation on the property due to the wind resource, and wind turbines may be a barrier to pivot irrigation.
- some farming operations may be affected during the construction period, and rent payments may not start until the wind farm is operational. Some developers offer a construction period payment to cover this.
- although wind turbines take up little space, wind monitoring towers have guy ropes and may have a footprint of 1,000 to 4,000 square metres which can impact cropping - but generally not grazing.
- due to the length of the lease there is some financial risk involved.
- electrical infrastructure such as substations may be less appealing for a landholder to host than a wind turbine, but are just as critical to a project.
Confidentiality agreement
Many wind farm developers enter into a confidentiality agreement with the landowner quite early in the development process, often on the first meeting. For a community wind farm, where transparency and openness may be a high priority and many commercial considerations that concern large scale developers do not apply, you may choose not to go down this path.
Checklist
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Start discussions with landholders at the feasibility stage.
- Negotiate an agreement to lease or memorandum of understanding before detailed assessments begin.
- Get legal advice on all agreements.