PIGEON – It was standing room only at Thursday’s wind energy meeting where landowners learned information about signing leases and the potential for strength in numbers when it comes to forming a group to get the most value for their land.
Steve Harsh, Michigan State University professor and extension farm management specialist, gave an in-depth overview of wind power renewable energy for the future, as well as landowner guidelines for evaluating wind energy production leases, to the roughly 100 in attendance at the Scheurer Professional Center in Pigeon.
Harsh said wind energy can be a very good economic investment, noting those who invest in wind developments will be rewarded not only through the energy that’s sold, but also through tax credits.
“There’s money begging to go into that area,” he said, noting the before-tax internal rate of return per turbine in a utility scale project is 15.1 percent. Wind projects can have a great impact on the local economy, and who owns Michigan’s wind and tax credits depends on which firms/individuals/limited liability companies own the wind farms, Harsh said.
“This is the concern I want to leave with you: Who’s going to own Michigan’s wind industry down the road?” he said.
It’s possible for the revenue created from wind projects to stay in the state in numerous ways. First, Michigan firms can develop utility scale projects.
Second, local limited liability companies – formed by landowners/investors – can form wind projects that are community-owned and operated.
A third option is flip-ownership, where a corporation owns the turbines for the first 10 years and then the title flips back to the landowner.
The most common type of wind project in our area – as exemplified by the Harvest Wind Farm in Elkton – is that where developers lease land from local landowners, and a fee is paid for the landowners’ energy rights (from around $4 to $20 per acre), Harsh said.
He said leases specify three time periods of importance: (1) time to begin development – which is called the evaluation period, (2) time to harvest wind – called the operating period, and (3) time to extend the harvesting of wind – called the option to extend the lease (which for some leases, could be as long as 75 or more years.
Harsh said it’s important to note the landowner is giving up long-term energy and other rights of several acres – not just an acre of cropland. Also, the landowner is giving up these rights regardless if any actual development occurs.
A problem that could arise would be if someone leases land to one company, and a neighbor chooses to lease to another which does build a wind project. That would leave the first neighbor in a lurch because they can’t lease land to the company who actually built a project as they’re still signed with the original company that approached them.
Randy Elenbaum, a group point person who helped arrange Thursday’s meeting, said he wanted to form a group of farmers in the Owendale-Pigeon-Sebewaing area so landowners in that area don’t create a “checkerboard effect” that results when landowners in a similar area sign leases with two or more companies. When that happens, it’s very hard for any kind of wind park to ever be built because there’s not enough land leased by one company to facilitate any kind of real development.
In his overview of things landowners need to consider when signing leases, Harsh said they need to look at who’s leasing the land – are they in-state or out-of-state companies? Do they have experience in leasing land?
What types of payment does the lease include – is it a one-time lump sum payment? Is it a per-turbine compensation, or does the lease compensate payment on the percentage of electricity sales? Is it a mixed payment option where there’s a fixed annual compensation plus a percent of electricity payment sales? Landowners need to determine whether or not the lease includes an inflation factor, a sale of tax credits, pooling clause and a force major clause.
He listed numerous other considerations landowners need to include in their leases – like who pays the property taxes, who’s liable for damages, lawsuits and other responsibilities, and what happens if the original developer sells the project to a third party and that third party defaults.
Also, Harsh said landowners need to pay particularly close attention to land use restrictions that are in the lease, as well as provisions regarding the termination of the lease.
“A landowners’ benefit/cost ratio will depend, in part, by how the lease is written,” he said. “The more you know, the better informed you are, and the better you will be able to negotiate the best value for your land/energy rights.”
Dennis Stein, MSU Extension east region farm management educator, also spoke during Thursday’s informational meeting. He said there’s a flurry of lease-signing activity going on throughout the county.
“Are there things out there happening? Yep,” Stein said. “ … We’re aware of six, seven, eight different companies with what I call ‘field men’ … trying to sign leases.”
Stein said by forming a group, local landowners can have the resources to be able to talk to experts, get an attorney to review the lease and include the things landowners need in their leases to get the most value for their land. “Take it slow if you’re being approached (by leasing companies),” he said. “I think there’s a lot of merit to the concept of working as a team.”
He said if local landowners can’t afford to individually shell out between $600,000 and $700,000 to develop a community wind project, their best bet is to research and negotiate for the best value out of their lease.
Michigan Farm Bureau Attorney David VanderHaagen was at Thursday’s meeting to give landowners a legal perspective.
“Are there some ways that you can do this together? Yes,” he said.
He said the best way landowners can unite to get the most value out of their leases, would be to form a group of interested landowners who haven’t signed leases at this time, but have been approached and have leases they’ve been given by various leasing companies.
Then they could share the costs of taking those leases to an experienced attorney to see which includes the best value for the group.
If the group of landowners live in close proximity to each other, Elenbaum said they would be approached by developers and could negotiate that way, too.
He proposed gathering a group that would add up to about 20,000 acres – enough to make a wind project really work.
“Leasing companies will sometimes pick up all of the group’s acreage – even if it’s outside the direct project’s goal area so the (developer) would have room to expand in the future,” Elenbaum said.
He said he knows for sure John Deere Energy and Midland Energy would be interested in speaking to such a group.
“If you build it, they will come – it’s like that philosophy,” Elenbaum said. “If we organize a group, there will be some calls to our group – possibly from leasing companies out of the state (who are new to the area).”
About half of those in attendance expressed a willingness to form such a group, and Elenbaum said a date for another meeting will be announced in the future. Thursday wasn’t the first time local landowners have gathered to discuss wind energy and land leases. But many felt this was the first meeting that offered concrete information.
“I wish you guys were here in our first meeting … this is the first time we’ve learned anything,” Dennis Fritz, of Pigeon, told the panelists, and the room broke out in applause.
For a copy of Harsh’s wind energy presentation, as well as the lease guideline checklist discussed during Thursday’s meeting, contact TJ Emerson or Randy Elenbaum at (989) 551-9463 or email@example.com.
14 March 2008
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