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By: Douglas M. Bregman, Esq.
The increasing use of windpower is not just a lot of hot air.
Obtaining the land on which to place the turbines can be a
clouded undertaking. This article will present some information
which can provide some shelter from the storm.
The installed wind energy capacity was enlarged in 2008 alone by
50% in the United States2. In fact, in the last two years the
quantity of commercially produced wind energy increased to be
more than twice that which was generated in the prior 25 years.
At this point, the United States is the world leader. This
growth has also sparked technological improvements.
Despite these improvements, the rapid increase in wind energy
capacity investment is currently somewhat on the wane. The
reason for this is almost strictly due to the lull in the
availability of financing. Wind energy lenders such as Wachovia,
Lehman Brothers and AIG are now out of business or not lending
in the field.
There are financial incentives which should drive the industry
once financing becomes available again. The tax benefits are
still in place, and are certainly enjoying political support.
But, many of those investors who would have sought these tax
benefits are not currently in the economic circumstances to be
looking to shield profits. Moreover, the industry will be given
a boost by the implementation of renewable energy portfolio
standards. These standards ask that electric utility companies
obtain a certain percentage of their power from renewable energy
sources.
Those active in the industry are searching for land on which to
establish windfarms. Wind data, mainly the wind speed average
(usually at least 13 mph), are collected over a period of time.
Another important factor is the existence of nearby transmission
lines. Other upfront due diligence must be considered, such as
taking the political temperature of the potential community
where the turbines may be installed, determining scientific
viability, such as the influence on weather3, and performing
avian migration cycle studies.
Of course, beyond the scientific studies, the windpower
developer needs to be negotiating with the landowners to obtain
easements, options to lease, or contracts to buy. This land
acquisition program is performed on a parallel track with those
working to establish the siting and project feasibility.
The pieces of real estate needed to be secured in some way fall
into several categories. The area needed for each turbine is
approximately one acre. A substructure needs to be built on
approximately three to five acres. Also, one or more operations
and maintenance facilities need to be built on two or three
acres to have a small building and yard available. A
communications facility (a microwave tower) may need to be
accommodated. Roads need to be laid out to handle the
construction, to bring in the sizable equipment, and to maintain
the installation. Finally, the utility lines, above or below
ground, need to be linked through easements.
While the land can be purchased, most typically it is leased,
for several reasons. Leasing involves less capital outlay; the
wind farm only needs to utilize less than 10% of the total real
estate; and the landowners can still continue to use their land,
such as for farms.
The transaction typically begins with an option to lease and a
right of entry agreement. During the term of these documents,
the developer can perform its due diligence.
If the years of due diligence lead to a determination that the
land is appropriate to utilize for a wind farm, the option to
lease is exercised. At this point, the wind lease term begins.
What follows are some of the critical elements of the wind
lease:
1. Term. The duration of the lease needs to take into
account the time necessary to get permits, construct the
operation, integrate the farm generation into the utility grid,
the useful life of the equipment, and perhaps extension terms if
the farm is feasible beyond the period initially anticipated.
Lease terms are somewhere between 30 and 50 years.
2. Compensation. This can take many forms. There can be a
base rental which is a function of comparable land rental rates
in the area of the wind farm juxtaposed with the economics of
the developer and the remainder usage capability of the
landowner once the wind farm has been installed. There can be a
bonus payment based on the number of wind turbines that can be
placed on the land. There can be compensation based upon
royalties calculated as a percentage of income once the
production of electricity begins. The landowner may want to
receive not only one or more of these forms of compensation, but
also gain a payment for crop or other damage caused by the wind
turbines, and penalties the farmer may receive for property
removed from the Federal Conservation Resource Program.
3. Right to Terminate. If part of the leased area cannot
be used or the economics change, the developer wants to retain
the flexibility to minimize the cost. The landowner also wants
to move the project along and minimize its long-term commitment
to the wind farm if its development is not going to be
successful.
4. Use Rights. Issues such as noise, sunlight shadow,
mineral rights ownership and visual effects need to be
discussed, understood and negotiated so as to allay concerns and
eliminate surprises and litigation.
5. Decommissioning. The costs and responsibilities
attached to the end of the project need to be negotiated. If the
land needs to be restored, the specifics of this responsibility
need to be defined.
6. Other Issues. Many other subjects must be incorporated
into the wind lease. For example, assignment, default, casualty,
insurance and environmental topics must be included.
In summary, the wind lease is a complicated document which
requires detailed preparation and negotiation. To prepare and
finalize a wind lease is not a breeze of a job.
1 - The inspiration and much
of the background for this article comes from the Spring 2009
Papers published by the American College of Real Estate Lawyers.
2 - At this writing, no wind farms have been built in Maryland.
3 - Barrie, D. B. and Kirk-Davidoff, D. B.: Weather response to
management of a large wind turbine array, Atmos. Chem. Phys.
Discuss., 9, 2917-2931, 2009.
Douglas M. Bregman is the Managing Partner and founder of
Bregman, Berbert, Schwartz & Gilday, LLC in Bethesda. He
practices in the areas of Real Estate Transactions and
Litigation, Business and Corporate Matters, Wills, Estate
Administration, and Mediation and Arbitration. He can be reached
at 301-656-2707 or dbregman@bregmanlaw.com
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