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Tricky, sneaky lil' wind energy companies

By June 25, 2010 , , , ,

I was recently editing an agricultural law column for the farm pub I work for and found it so interesting - I just had to share it on my blog! John Schwarz is a farm boy from Steuben County, Ind. and also a lawyer (and also a real nice guy that I was once a fellow intern with!). Somehow he manages to help his Dad farm over 1,500 acres of corn and soybeans and keep up a steady business of clientle in the legal arena. "
"You can take the boy outta the country, but never the country outta the boy!"

 Anywho ... he recently submitted a column to me regarding lease agreements for wind energy turbines on farmland. If you're not familiar with wind turbines - they are those gigantic white turbines you see in farm fields, prairies, mountain sides and even across ocean waters that help to generate electricity using wind. They can measure nearly 300 feet in height, with a rotor diameter of the blades at 269 feet across - depending on the manufacturer. I will not be discussing the benefits of wind energy in this blog - but as you may know - it does provide an alternative source for energy production rather than depending on depleting resources from abroad.

According to Schwarz, many wind energy agreements are offered to farmers in 40, 75, 100 and sometimes perpetual year leases. And the financial offering of these agreements is often pretty lucrative in terms of $$$ per acre (or per megawatt produced) needed for the turbines. You may be thinking ... so what, who cares! I do and if you read on you'll soon understand why. 

Well, we all know that attractive prices of today may not even cover the input costs in years to come. So, by signing such a long-term agreement, farmers are really putting themselves, their inheritors and future generations in jeopardy of financial distress down the road - 40, 75 or 100 years.

Mr. Schwarz has reviewed all kinds of differing wind energy lease agreements for clients across the state of Indiana. Most of these contracts offer the landowner a per acre amount for signing up, and then a royalty for the amount of megawatt hours of electricity installed. For instance, one particular contract he reviewed offered the landowner $7,500 per year for each megawatt installed on the farm. Not bad, considering if the company was able to install multiple turbines.

However, as you can imagine, no wind energy agreement out there operates on a year-to-year basis. The shortest duration stated in a wind energy contract he has ever reviewed is 40 years. The longest duration was perpetual. Yep, thats right, it went forever so long as electricity was being produced by the turbines.
So, a landowner signing an agreement with terms paying $7,500 per year per megawatt with a duration of 70 years will be paid $7,500 per megawatt in 2010 and each and every year thereafter up to the year 2080. Why on Earth would anyone agree to be paid the same amount each year all the way up to the year 2080? I doubt $7,500 buys much in 2080.

For this reason alone, Mr. Schwarz thinks signing a wind energy agreement for fixed payments over a long period of time would be worthy of Forest Gump’s famous line - "Stupid is as stupid does."

Anyone looking to enter into a long-term wind energy agreement should insist upon the payments being tied to the Consumer Price Index (CPI) or other inflationary index. Thus, as the spending power of the payment diminishes over time, the payments increase. If the company balks at such, he strongly suggests you RUN, not walk, away from the agreement.
The moral of the story is that when presented with a wind energy lease agreements, our hope is that farmers and landowners are not lured into signing an agreement based off of what the payments will be paid to you in the short-term. Consider what the payments will be decades down the road. Else, farmers and landowners may find themselves having a wind turbine on their farm that only generates enough income to buy a loaf of bread in the distant future. Yikes! So if you know of any landowners or farmers out there being approached by wind energy companies to build turbines - forward them to my blog so they can get a look at what the wind companies will probably NEVER explain clearly enough! And for anyone else out there - always remember to read the fine print, ask questions and if necessary consult legal advice!

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  1. So, because of inflation, they will be getting very little 40 years from now? VERY good to know, as we have a lot of wind turbines around here.

    AND, as soon as a wind turbine is put up, the property taxes go up, costing the farmer more money. (Although we have a beautiful new school building up the road because of this!)

  2. Hi! I'm your newest follower from Friendly Friday :) I hope you'll take a moment to stop by and see me at Mom of all Trades!

  3. I could see locking in the rate for 10 or even 20 years, and then have rates arbitrated or something, but 75+ years... that is nuts.

    Now following your nifty blog from Follow Me Friday.

  4. Very interesting!
    I'm your newest follower from Friendly Friday (and also a farm babe- well not so much "babe" anymore - but used to be - LOL! Please follow back when you get a chance!
    Jennifer @ The Craft Barn

  5. Hi Im a new follower from friday blog hops


  6. I know...I'm leaving another comment, but...
    I'm passing on an award to you!! :-)
    Please visit here: http://thecraftbarn-ny.blogspot.com/2010/06/my-first-award.html to receive it!!
    Jennifer @ The Craft Barn

  7. Good points. In Benton County we became the poster child for what to do and NOT to do.