Wind Farm Agreements – what are the benefits?

Wind Farm Agreements: Analysing Stakeholder Benefits

In Western Australia, developers are increasingly approaching landowners to establish wind farms on their properties. Wind farm agreements often take a multifaceted lease arrangement characterized by various stages, each presenting distinct risks and advantages.

It is important to note that landowners are under no legal obligation to enter into access and lease agreements with wind farm companies, and renewable energy projects are governed by different regulatory frameworks than those applicable to petroleum and mining in Western Australia. However, there can be fantastic commercial opportunities for landowners if arrangement can be made that benefit all parties.

License Agreement (Access)

The initial phase typically involves a license agreement, which grants the developer access to the land for the purpose of conducting wind resource assessments and environmental surveys. This stage is critical for evaluating the project’s feasibility, suitability, and any potential implications related to Aboriginal cultural heritage.

Option Agreement

An option agreement establishes a temporal arrangement in which the developer secures the right to negotiate a lease agreement with the landowner at a future date. This option generally spans five to eight years, during which the wind farm company compensates the landowner with an annual option fee. However, this arrangement often includes an exclusivity clause, preventing the landowner from engaging with other developers during the option period, regardless of potentially more advantageous offers. It is crucial for landowners to comprehend the implications of this exclusivity on their existing business operations. Additionally, option agreements can be exercised at any time within the specified term, raising considerations about the timing relative to critical agricultural activities, such as harvests.
Upon the exercise of the option, the parties enter into a lease agreement.

Lease Agreement

The lease agreement finalizes the terms of engagement, allowing for the commencement of construction activities. These agreements typically span 25 years or longer, necessitating a thorough understanding of their long-term implications.

In recent years, the capacity of wind turbines has escalated from 1.5 MW to between 5 and 7 MW per turbine, indicating an ongoing trend towards enhanced generation capacity. Notably, electricity prices in Perth have risen by 30% over the past decade, while landowners’ rates are often fixed, potentially resulting in a disparity where the developer’s revenues could increase threefold.

Lease compensation structures usually operate on two models:
1. Turbine Generating Capacity: Fees calculated on a per megawatt basis.
2. Flat Rate per Turbine: A fixed fee per turbine installed.

Typical rates for the generating capacity model range from $3,000 to $7,000 per megawatt produced, which tends to be more advantageous due to the potential for higher yields. Conversely, flat rates are generally between $15,000 and $30,000 per turbine, with annual adjustments based on the Consumer Price Index (CPI).
Construction costs for each wind turbine generator approximate $3 million, encompassing foundations and all turbine components. However, the sources of funding for these projects are frequently opaque, underscoring the importance of safeguarding against potential financial liabilities.

Decommissioning funds are essential in mitigating these risks, as the cost to dismantle and rehabilitate a wind turbine typically ranges from $400,000 to $600,000. Developers should contribute to such funds to ensure that landowners are not burdened with these expenses in the event of the developer’s insolvency.

Conclusion

Legal costs associated with drafting, negotiating, and initiating agreements are generally borne by wind farm companies and developers. They tend to exhibit a willingness to negotiate and accommodate specific agricultural needs of landowners.

Wind farm developments represent significant opportunities for landowners and their communities, and the sector remains dynamic and evolving. Often, the initial offers may not reflect the best terms available. At HHG, we aim to provide legal counsel that mitigates risks while enhancing both commercial and legal value in lease agreements.

*The information provided in this website serves as a general guide and does not constitute legal advice. It is based on our research and experience at the time of publication. Please consult our knowledgeable legal team for any specific inquiries or advice relevant to your circumstances, as the content may not have been updated subsequently.