Landowner considerations when negotiating wind energy leases
As a result of the recent push for “green” energy and alternatives to fossil fuel, wind farms have been sweeping the plains. State and federal tax credits and other incentives for renewable energy helped drive financial resources to support and grow the wind energy industry in the United States. Indeed, the United States has now surpassed Germany as the world leader in installed wind energy. Despite a dismal national economy in 2009, the wind energy industry continued to grow.
The majority of our nation’s wind turbines are found in the Midwest and Western states (see awea.org for a state-by-state assessment). Wind farms generally require three acres of land per turbine and a location that can be dedicated to the long-term development of tens to hundreds of turbines. As a result, wind farm developers have and will continue to approach farmers and ranchers across the country seeking to utilize their land for wind farm developments.
Lawyers from McAfee & Taft’s Agriculture and Equine Industry Group have worked closely with members of the firm’s Renewable and Sustainable Energy industry group to help clients negotiate wind energy leases in several states. Such combined talent has provided us with the experience and expertise necessary to address the many aspects of wind energy leases which often exceed 30 pages and include complicated provisions that impact the use of one’s land during the term of the multi-year lease.
When approached about a wind energy lease, the landowner must first determine whether the impact and intrusion of a wind farm operation outweighs the current and future use of the land. The answer is not always yes. While wind energy leases provide a new source of income from the land and development terms can be fairly lucrative, there are many factors to consider before agreeing to tie up one’s land for potentially the next 30 to 50 years. The location of turbines and access roads on the leased land should not be the sole consideration.
Wind leases grant wind companies the exclusive right to capture the wind flowing across the land. As a result, the construction of improvements on leased land is generally prohibited without the express consent of the wind company. Residential development of leased land will generally be out of the question. In addition, potential plans for irrigation, construction of grain bins or even wind breaks could be prohibited. Land encumbered by a wind lease may also be less attractive to an oil company because of potential disputes between the wind company and oil company over the location of drilling sites, wells, tank batteries and pipelines in relation to wind energy facilities.
Once the issue of whether the land is right for wind development is determined, there are a multitude of other details to closely consider. These include:
- Length of the lease. Leases generally include an option term that allows the wind company to hold the land pending further wind speed testing, leasing of adjacent lands and other considerations, and a development term for the actual construction and operation of the wind farm.
- Financial considerations, such as payments during each term and for construction of access roads and other necessary improvements such as power lines, transmission lines and maintenance facilities.
- Allocation of rights to the land and site development. Who gets to decide where to put access roads, turbines and powerlines? What restrictions are placed on wind company employees and the landowner or his tenants such as hunting, mining, oil and gas exploration?
- Liability allocation, such as indemnification for negligence, insurance requirements, bonding, allocation of taxes, environmental issues
- Assignment of the lease. Many companies that lease land and develop wind farms “flip” them to utilities for the long-term operation.
- Restoration after expiration. What happens to the turbines and other facilities when the lease ends, the turbines are no longer useful, or the company goes bankrupt?
Wind energy leases provide a tremendous opportunity for landowners across the United States. However, the implications of a wind lease are far reaching and should not be taken lightly. If you’re contemplating a wind energy lease, be sure to consult an attorney who can explore and thoroughly explain all your rights and options.