Evaluating a turbine lease

What’s a wind turbine lease worth? That’s a question that is coming up more regularly in at least four situations:

Evaluating a turbine lease

What’s a wind turbine lease worth? That’s a question that is coming up more regularly in at least four situations:

when buying or selling land with turbines on it

when doing estate work involving land with turbines on it

in the case of divorce

when buying or selling wind rights

There is no simple way to confirm how much will be paid and for how long. These questions are complicated. There are many layers of contracts, as well as changing regulations and market issues that are always pertinent and become more important as projects age.

But there are a few things you can look at to get a basic idea of what a turbine lease revenue stream will be.

Key Points

• The value of a wind turbine lease depends on several factors.

• Average the energy statements to project payments in the future.

• Lease length is irrelevant; many can be terminated at any time.

You should start with the “utility statements” or “energy statements.” These are the statements the project owner should send the landowner every year, and maybe quarterly. Most often, these will show the amount of power produced and the amount paid the landowner in connection with those sales.

An average of several years of these statements will give an idea of what the future payments will be. This is an oversimplified approach to this issue, and there are many factors that can affect this revenue, but this is a good place to start regarding the question of “How much?”

How long the revenue will continue is also a complicated question. But here, too, there are a few basic things you can look at.

First, however, you should disregard the term of the lease, because the lease term (whether 30, 50 or 60 years) is mostly irrelevant to how long revenue will be generated, because the project owner can terminate the lease at any time and the power buyer will not have committed to buy the power forever.

Instead, what you need to look for is information regarding the term of the project’s “power purchase agreement” or PPA. It is likely that revenue will continue for this term. Often, you can find the length of a PPA with a Google search. For example, if the project is 10 years old, and has a 20-year PPA, then you can in many situations expect the revenue to continue for another 10 years.

There are multiple and various things that can affect how much will be paid a landowner with turbines on his land and for how long, but the points above will help you get a general sense of this future revenue.

Haight is a Denver attorney who focuses on solar and wind development transactions. He founded LeaseGen (leasegen.com), a proprietary model for valuing wind turbine assets.

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LEASE VALUE: Wind turbines produce power on a North Dakota farm. Determining the value of the lease isn’t as simple as it appears.

This article published in the April, 2016 edition of DAKOTA FARMER.

All rights reserved. Copyright Farm Progress Cos. 2016.

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