The geographical size of the project, for one thing. Even the smallest wind farms typically cover tens of thousands of acres, and that means that multiple landowners will almost certainly be involved. In many cases, this means going into business with family members who have been on the land for generations.
The sheer size of a wind farm and the multiple landowners who will be involved makes it more convenient for wind farm developers to negotiate leases with multiple parties at the same time.
In the beginning of the wind boom, wind leases were comparable to oil and gas leases. They were quite pro-developer and remain pro-developer to some extent. Early wind leases were often 30 or 40 pages long, even excluding the description of the land.
Wind leases, unlike oil and gas leases, involve a tenancy of years on your land as opposed to a straight-out purchase of the land. The projects are capital intensive and often funded by third-party lenders, so the leases have had to cover long enough periods of time to be profitable.
What are the major elements of a wind lease?
While a wind lease can be complex, it follows a predictable pattern. It typically contains an “option” or “development” term and then an “operations” or “extended” term. The option or development term lasts from about three to about seven years. Its purposed is to allow the developer to conduct studies on the feasibility of the project. The operations or extended term generally lasts about 30 or 50 years. It involves the construction of the wind farm and its operation.
The compensation terms vary from project to project and even from landowner to landowner, but they typically include:
- Development fees
- Minimum royalties (a guaranteed minimum annual payment that does not depend on the amount of electricity produced)
- Royalties (a set percentage of the gross revenues generated by the lease)
- Surface damages/surface protection provisions
- Payments for the use of water and caliche
- Reimbursement for lost hunting revenues
- A removal bond clause/cleanup at the end of the operations term
- Financial provisions for the protection of the wind company’s lenders
- Miscellaneous terms like dispute resolution, confidentiality and force majeure
- A “most favored nations” clause guaranteeing that all landowners in the project will get the same basic compensation, regardless of the number of acres they provide
How are multi-party wind leases negotiated?
It might begin with a barbeque or other promotional event for landowners held by the wind company. Or, a county government might hold meetings with the wind developers to discuss ad valorem tax abatements for the project. In at least one case, the major of a town formed a wind energy consortium, then sponsored educational and public meetings for landowners to organize support for the wind farm. Ultimately, the landowners might form their own group.
If you have been contacted about leasing your land for a wind farm, talk with an attorney who has handled wind leases in the past. Together, we can work to ensure the lease protects your long-term interest in the land while maximizing your potential profit from the wind farm.
