Renting land to wind energy developers is becoming a trend in farm country. However, many questions arise when it comes to the specifics of lease payments and the long-term benefits. Spencer Smith is the Government Relations Committee Chair with the American Society of Farm Managers and Rural Appraisers. He says there are a lot of things to think about when a landowner receives a wind tower.
“That lease that you are agreeing to with that wind tower company is really going to set the structure for the terms of that contract,: the length of time, the payment schedule, if there’s damages, and the access points. There are a lot of things that need to be negotiated. Educating yourself, doing your due diligence as a landowner to familiarize yourself. Keeping your farm operator in the loop as well is going to be very important as you start thinking about entering into these contracts. We’ve certainly seen a flurry of them here in the Midwest. It’s very important to understand how that wind tower and that lease is going to affect your land value and your land asset for years to come.”
Smith talks about how the payment structure is set up.
“Those are going to be based on the wind tower turbine capacity. Typically, those payment schedules are tied to the production off of that wind tower. Most wind towers that we’re seeing here in the Midwest are anywhere from a three to five-megawatt capacity. Those payment ranges could be anywhere from $2,000 to $5,000 per megawatt for those wind towers. So, you can do the quick math. That’s a pretty significant payment. There are also payment rates for underground transmission lines that may run through your property or access roads. Those are all important things to educate yourself with, especially if you’re looking at getting one of these placed onto your properties. Those typically come with a two percent escalator clause in them as well to help cover for inflation.”
The leases typically run 20-30 years with some extension options built into it. The turbines can add value to the bottom line.
“Typically, landowners are the ones being approached with these options for these wind towers. It’s very difficult to go out and solicit your land to have a wind tower placed on it. A lot of these are coming through government subsidies, but as far as contributory value to your property, running a simple discounted cash flow can really help you understand what that value-add is. And sometimes in the marketplace – as a real estate broker – the market may not fully realize that. There is certainly a contributory value that could range from a $1,200 to $3,200 an acre of contributory value. It really depends on the income production from that wind tower, and the length of lease that’s left for the term of that lease on that property.”
For more information, go to asfmra.org.