Currently, there are a total 626 wind projects scheduled for development if the economy holds up. As a result, this market boom has become the hottest ticket for land owners and economic development throughout the U.S. Leasing companies and developers are buying up lease agreements (i.e. - known as option contracts) for the potential development of large-scale wind energy projects all over North America.
In Indiana, aerial wind map data show favorable wind shear at 300 feet (100 meters) above the earth’s surface in Benton, White, Lagrange and Clinton counties. Wind developers search for site selection opportunities, at a minimum, that offer average wind speeds of 6 m/s (meters per second). These wind speeds are required in order to maximize the greatest return on an investment for large wind turbine systems.
In LaGrange County, an area around in the southwest part of the county is an ideal setting for a wind energy project with the greatest potential for opportunity. This area seems to fit a developers profile since it is located in a rural area with significant wind speeds at 100 meters. It also located near an existing electric transmission line and has good access to roads and open spaces. These key characters are essential for the making of a commercial-scale wind farm.
However, property owners need to understand what land rights are lost in lease agreements or option contracts. There are numerous clauses spelled out in an option contract that property owners should be aware prior to singing on the bottom line.
The following is a short list of clauses that may appear in wind lease contracts.
Confidentiality clause – a wind developer may prevent a discussion with other landowners also involved in the project; and/or the developer also may prohibit the release of preliminary wind collection data for future use to the land owner.
Length of the lease clause – the developer’s term limits or extensions rights of the contract may prevent other future business opportunities with other new developers if the current party is unable to finance or develop the project
Compensation clause – This is dynamic because there are many payment options for the developing parcel of land for wind energy production (for ex - percentage of revenue from electric sales, lump sum payouts, fixed land payouts or a combo of each) that occur during an evaluation phase or production phase for power generation; also there are tax consequences for each payment type and other property tax arise due to land improvements. Renewable energy credits (RECs) and federal tax credits may also be negotiated as part of the compensation package for land owners of large-scale projects that the developers gets as additional compensation from the government.
Assignment clause – This clause may permit the wind developer to sell or transfer the lease rights to another party.
Choice of law/Venue clause – Any litigation that arises under the contract must apply to the laws of the state in which the developer is located and/or heard by the court in the developer’s home state.
Force Majure clause – permits the developer to extend the time of the lease if such a delay may be caused by any natural causes, law, legal action or requirement of a government agency, court or utility, etc.
In summary, it is wise to consult with expert legal counsel and real estate professionals that specialize in land lease agreements for the development of investment opportunities for energy projects. In addition, there are a lot of other concerns associated with property lease agreements, such as but not limited to; land scope and usage, liens and encumbrances, contract termination agreements, bonding and insurance, bankruptcy or insolvency, site remediation and end of project life, permits and conditions, creditor responsibilities, federal farm programs, third party liability, employee safety, etc.
For more information, please contact:
ROD EAGLESON, Energy and Environmental Analyst
PH: 260-336-2400/cell: 574-340-1248