Wind Wisdom | 5 Questions to Ask Before Signing a Wind-Energy Lease

4. How will I be compensated?

Lease payments can be structured in many ways, including:

            •fixed payments based on acreage, towers or megawatt capacity;

            •royalty payments based on a percent of gross revenue;

            •or some combination.

All the wind-lease payments that Dean Retherfordhas negotiated are based on gross revenue per turbine. Each 1.5- or 3-MW turbine earns an annual royalty payment of $5,000 and $8,000, he says. The wind companies pay property taxes on the commercial facility, but not on the leased land.

Most wind-power leases today provide for similar royalties based on revenue, Ferrell says — typically 3-5% of gross earnings. The contract should clearly spell out how your payment will be calculated.

For example, if your royalty is 4% of gross revenue, how will gross revenue be defined? Does it include only the sale of electricity, or does it also include revenue from the sale of tax credits or renewable energy credits? Will your payment be based on revenue from the turbines on your land alone, or on average revenue for the entire wind farm? What can be subtracted from gross revenue? Can the wind-power company deduct for power lost during transmission or for periodic curtailments?

Leases that include a royalty should also set a minimum rent that will be paid whether or not the turbines are generating power for sale, Ferrell says. In addition, many royalty leases now include an “escalator” provision raising the royalty percentage at specified intervals. This arrangement can be a good deal for both the developer and the landowner, he says. During the early years of the project, the company can recover its initial costs faster. In later years, the landowner shares in a greater percentage of profits.

Royalty leases should always include an audit provision, Aakre says, which allows access to the company’s financial records “to verify the revenues produced by the wind farm.”