Tuesday, October 20, 2009

Wind Energy Secrets

In many rural communities, wind power of today is unlike the wind power of yesterday. The small wind powering systems that were once used to pump water have changed with the times. These little machines are now the (400 foot tall) towering, high-tech structures that are dotting the American landscape.

As a result, the massive build out of these large-scale wind energy systems also bring about a new meaning to farming or land ownership. A lot property rights are currently being tied to these big money projects as big government promotes renewable energy standards and subsidy programs that push wind farm development onto America’s greatest resource – the farmer.

The purpose of this article is to generically expose a few secrets related to wind energy lease agreements. Most wind energy contracts are very complex documents and are hard to decode even for the local attorney. Farmers should educate themselves about the ins-and-outs of wind energy development and how to effectively bargain for the best pricing arrangement. For negotiation purposes, an example of contract payment terms that are offered by various developers, are as follows:

Misc. Payment Types/Market Price Ranges
• One-time turbine installation payment: $1,000 to $2,500/MW
• MET tower fee: $0 to $2,000 per year payment
• One-time adjacent property easement payment: $1,000 to $5,000 (with no turbine onsite)
• One-time Attorney/Financial Advisor payment: $100-$300
• Initial Signing/Land Development Option payment: $1 to $20/acre (yearly)
• One-time road construction payment: $1/linear ft or up to $30/rod
• Transmission line construction payment: $2 to $6/rod

Lastly, wind developers are procuring power purchase agreements that pay on average $49 to $57 per MWH with a 2 to 3% increase each year, over a normal 20 year contract term. A 1.5 MW wind turbine based on a 25% (DOE - 2008 national average) operating efficiency capacity rating at $49/MWH would yield about $160,965 in gross revenue annually. This doesn't include factoring in the generous production tax credits, grant money or additional allowances for carbon offsets. These are worth about another $15/MWH or extra $49,275 in gross revenue per year that the developer and/or utility company usually inherits.

In closing, wind power is fast becoming to energy generation what the American farmer is to our bread and butter. As most landowners are lucky to get 5% of the gross revenue stream per turbine (without government subsidies), the American farmer must actively negotiate for the better deal. Poor contract negotiation skills may lead to the loss of land rights and less money.

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