Nov. 6, 2008 by Justin Bannister NMSU News Center
At times, the formidable winds known across much of the western U.S. can be unpleasant, but now western farmers and ranchers are seeing dollar signs in the wind as they look to lease portions of their land to wind farm developers.
“We are seeing a wind land rush in New Mexico by more than two dozen wind developers of all stripes and shades,” said Robert Foster, associate director of New Mexico State University’s Department of Agricultural Economics and Agribusiness in the College of Agriculture and Home Economics. He also is a program manager for NMSU’s Institute for Energy and the Environment.
Three elements necessary for a successful wind farm, Foster said, include land with a good wind resource, access to transmission lines and a contract to sell the energy. A piece of land is considered optimal for a wind farm if it has average annual winds greater than 15 miles per hour.
“Since financing for large wind power plants requires millions of dollars, landowners usually lease the land and receive a royalty from the energy produced by the wind turbines, similar to the oil and gas industry. The difference is that the wind resource can be fully determined before large amounts of money are invested and even more important, the resource will never run out,” he said.
According to Foster, the U.S. has installed more than 4,000 megawatts of wind energy generators this year alone and has a total of more than 21,000 megawatts of wind plants. One megawatt is equal to one million watts, enough energy to supply approximately 1,000 people. New Mexico is ranked 12th nationally with 500 megawatts of wind farms installed and another 100 megawatts under development.
On average, a wind farm’s footprint with roads and transmission lines is only about 10 percent of the land, so 90 percent is still available for livestock or crops.
“Livestock are not scared of wind turbines and you’ll often see cows sitting in the shade of a turbine. Birds can easily see wind turbines and avoid flying through them. There are occasional bird kills, but usually during bad weather, such as fog, when they cannot see the turbines. That’s generally not a problem in New Mexico,” Foster said.
Currently, ranchers in New Mexico receive about $1.8 million a year for leasing their lands for wind farms.
“Normal wind farm leases are from 25 to 30 years,” Foster said. “Landowners should beware of companies that are only going to flip their land lease over to another developer and instead try to deal with an actual wind farm developer, not just a land speculator.”
Foster said royalties on production vary. The most common approach is a royalty based on a percentage of production, normally ranging from 2 to 5 percent per year with an escalation clause possible after a few years. Wind resources can naturally vary as much as 20 percent from year to year, so royalties vary as well. A flat royalty per turbine typically ranges from $2,500 to $5,000 per megawatt, depending on the wind resource, transmission capabilities and other factors. Some contracts give landowners a combination of percentage and flat rate amounts. In the Midwest, some landowners sign “flip models” where they receive nothing for the first few years, and later own everything including all electrical production and maintenance.
“The landowner should maintain access to his land as part of the agreement. Be sure to negotiate on road building and land restoration. A rancher should get a knowledgeable lawyer to help with contracting to avoid being taken,” Foster said.