§7.4 WIND
Wind projects are the fastest growing sector of renewable energy being developed in Washington and nationwide. The significant real property issues for wind projects include locating suitable sites, obtaining the property rights to develop and operate the project, and obtaining the necessary permits. For a commercial-scale wind project, a lease is a common way to document the property rights and obligations involved.
(1) Private lands lease provisions
Many provisions common to a ground lease are appropriate to use in a wind lease, although there are several aspects of wind leases that require particular consideration and attention.
(a) Purposes
A potential tenant who is interested in developing a property for a wind farm has several evolving needs and interests—initially studying the feasibility of the project at the proposed locations, developing the project on the site once permits are issued, operating the project to generate electricity, and on-going access and incidental uses. These components may be contained in a comprehensive lease or in separate agreements, such as an option for feasibility testing and to secure rights to the property if the project goes forward, followed by a longer-term lease if the studies indicate the project is feasible.
The feasibility study component is discussed in more detail at §7.4(2), below. The development portion encompasses all of the aspects necessary to build the project, such as siting and erecting the wind towers and turbines; constructing transmission facilities, including overHead and underground transmission lines, switching facilities, transformers, and storage; installing meteorological equipment; building roads and erosion control systems; and constructing maintenance yards, signs, and fences. If property is needed for a substation or switchyard, the lease may provide for a separate agreement.
Access is a key part of any wind lease since the tenant will require regular access to the towers and associated facilities for construction, operation, and maintenance. Provision also should be made for incidental uses for activities that may be necessary, appropriate, or convenient to accomplish the purposes of the lease, such as surveys, studies, or tests, including geotechnical drilling and studies. An incidental uses provision also may be used to accommodate changes in technology and/or subleasing or third-party operation of the project.
(b) Easements
A wind lease will require operational easements as well as separate easements for access and distribution facilities. The operational easements come in several parts:
| (1) | a nonexclusive easement for crane access to the generating units for installation, repair, or replacement; | |
| (2) | a nonexclusive grant from the landlord to the tenant for audio, visual, view, light, flicker, noise, shadow vibration, air turbulence, wake, electromagnetic, electrical and radio frequency interference, and any other effects that may be attributable to the operation of the project on the property or adjacent properties owned or controlled by the landlord; | |
| (3) | an exclusive easement to use, convert, maintain, and capture the free and unobstructed flow of wind currents and wind resources over and across the property; | |
| (4) | an exclusive easement for the turbine rotors on adjacent properties to overhang the property; and | |
| (5) | a nonexclusive easement for distribution lines, communications lines, and associated facilities, including both an above-ground and below-ground component. |
The terms of the operational easements should be coextensive with the term of the project. Separate easements for access and for distribution facilities may be included in the initial lease or provided for as subsequent grants to be made at the request of the tenant during the lease term.
(c) Exclusivity
A wind lease tenant will require a grant of exclusivity to develop and use the property for wind energy purposes. The lease also should contain language that the exclusivity right does not require the tenant to construct or operate the wind project and reserves to the tenant all rights to decide if, when, and to what extent it will construct and operate a wind project on the property.
(d) Landlord's reserved rights
The lease should reserve to the landlord all rights to use the property for any purpose not associated with the wind project, such as agriculture, ranching, recreation, hunting, oil, gas and other mineral exploration, and geophysical and archaeological exploration. The lease also reserves the landlord's right to rebuild, replace, or enlarge existing structures on the property or build additional structures outside of the setback areas for the wind towers (usually a 300-foot diameter circle) and easements for crane travel, access, and distribution. The additional structures provision also may include restrictions on any structure, such as a barn or silo, that might obstruct the free flow of wind. Finally, the lease should provide that the landlord may lease the property and grant easements to third parties, provided such uses do not include wind energy generation or interfere with the wind project.
| Practice Tip: | In a wind lease, provision should be made for attaching a site plan showing the proposed locations of the wind tower generating units, the crane travel path easement, access easement, and distribution easement. The lease should provide that the site plan is to be attached before the development term expires, see §7.4(1)(e), below, and replaced with a final as-built survey within a specified time after completion of construction. |
(e) Term
If the parties have combined the development and operational phases into one document, the lease also should provide separate time periods for the two phases. The development term is intended to provide the tenant-developer with assurance that it has the necessary rights to the site while conducting the studies and arranging for financing and government approvals to proceed with the project. The length of this term is shorter than the operational term, but can be up to six years.
The lease also can contain a drop-dead date, a specified time in the future by which the project absolutely must begin operating or the lease is terminated. This date should be set far enough in the future to give the tenant-developer adequate time to determine the feasibility of the site and obtain the requisite permits and financing.
The operations term commences after the tenant-developer has completed the studies, secured financing and permits, and built the project. The right to exercise this term is contingent upon it occurring before the development term expires. Triggering the start of the operations term requires written notice to the landlord and specification of a date on which the development term ends and the operations term begins. The operations term typically is for 20 to 25 years, with an option for one extension of a like term and on the same terms and conditions as the original, except for adjustments in rent.
(f) Rent
The rent provisions of a wind lease are similarly bifurcated between the development and operations terms, plus provision for additional lump-sum payments to the landlord as specified construction events occur.
The development term rent usually is an annual lump sum payment similar to an option payment. A property owner may seek to have a portion of its legal costs added to the development rent. Such provisions are common in a wind lease, but the amounts usually are capped or nominal.
The operations period rents are more complicated because they can provide for multiple-payment schemes depending on the status of the project. Until the project is operational, the lease may provide for a nominal payment of a few thousand dollars. Once the project starts generating power, there are several options for structuring payments: royalties (with payments defined as a percentage of gross revenue or based on a price per unit of energy production), royalty plus guaranteed minimum payment, a flat or fixed fee, or a one-time lump-sum payment.
| Practice Tip: | A wind lease that provides for production rent based on gross revenues should define precisely what the parties mean by the term "gross revenue," and it should list the categories of revenue that are included and excluded from gross revenue. For example, the parties might define gross revenue as the aggregate total of revenue actually received by the tenant for the sale of energy, less any costs of hedging or risk mitigation for market price fluctuations. The list of inclusions might include payments the tenant receives for renewable energy credits (RECs) or pollution credits directly resulting from the portion of the project on the leased property. The exclusionary |
