WIND FARMS
Window of Opportunity
Increasing concerns over global warming and the desire to promote alternatives to carbon-based energy are also driving wind energy development in Michigan. While there is some uncertainty as to how long the federal government will provide tax breaks for wind farms, some in the industry claim that utility-scale wind power is already more economical than coal-fired electrical generation. In addition, mandates that utilities generate a certain percentage of power from renewable sources will continue to spur new wind farm projects.
Little Initial Revenue
Wind farm agreements present an initial challenge in that the up-front payments are typically very small as the developers are sometimes looking to acquire rights to large tracts of land to evaluate for potential wind power generation. These developers are reluctant to make significant payments until they have had sufficient time to evaluate the most optimal wind turbine locations. Thus, it may be helpful to request an initial payment from the developer to be applied toward a review of the documents by counsel.
Option to Lease
Wind farm agreements are frequently presented as “options to lease.” For a modest payment, the wind company holds exclusive rights (but not the obligation) to lease the property. Usually, the option extends for at least one year, but can provide for multiple years. If the land is subject to an option to lease, the land cannot be leased to another company and long ranging planning must include consideration of the possibility that the option will be exercised at any time within the term.
Most options either include a specific lease that will become effective upon exercise of the option or a statement of the most important terms that will be contained in the lease. Thus, it is important to negotiate the terms of the lease before granting the option.
Confidentiality
Many leases and options to lease contain confidentiality clauses which apply to all terms of the agreements, including the financial terms and even the identity of the wind farm operator. Thus, once an agreement containing a confidentiality clause is signed, telling your neighbors about the terms of the agreement could constitute a breach of contract.
Exclusivity
Some leases contain exclusivity clauses that preclude the landowner from leasing other property to a competing wind energy company. Landowners with substantial acreage should consider requesting a limitation of the breadth of the geographic exclusivity.
Renewal Terms
Most leases have an initial term of ten to twenty-five years, but also grant the operator the right to terminate the lease early if the project proves to be economically unfeasible. Often, these leases also grant the operator the option to renew the lease for several successive terms of five years. The combined renewal terms often equal the length of the original lease term.
Rent Escalation
Rent payments are typically tied to the kilowatt rating of the turbines actually placed on the property. Since a wind farm lease may extend for decades, it is important to provide a mechanism to make sure that the rent payments keep up with inflation. Many leases include a rent escalation provision that increases yearly rent by a certain percentage. If a land owner is not comfortable with the rent escalation percentage, the land owner might consider tying the yearly increase to either the consumer price index or increases in power purchase contracts approved by the Michigan Public Service Commission.
Restoration
Most landowners will want the lease to require the wind farm operator to restore the property when the lease ends. These provisions should include removal of all equipment to at least plow depth and leaving the property free of any dangerous conditions created by the wind farm operator’s activities.
Contact Storey PLLC regarding Wind Energy
Attorney Advertising. This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.