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Assessing the values of wind and solar projects for landowners
Brad Haight is the founder and owner (along with his wife) of LeaseGen, LLC which, according to its website, values wind and solar lease revenue streams for buyers and sellers of property where turbines or solar equipment is installed.
In a presentation Tuesday at the Land Value Expo in Des Moines, Iowa, Haight told attendees that LeaseGen also helps owners structure the economic provisions of their wind and solar leases, with a focus on long-term value.
A Louisiana native and a lawyer, Haight said that he became involved in the wind and solar industries by way of working in the oil and gas industries and in land development.
Based in Colorado, Haight told the Land Value Expo attendees that he has been involved with agriculturally-related venture capital projects since 2009. His presentation dealt mostly with wind projects, but he did talk about the economics of solar installations at the end of his 45-minute session, which was entitled “Property Value and Wind and Solar Leases.”
One way Haight assesses the economic validity of a project is by looking at collateralized loan obligations (CLOs) that have been put together for wind projects. CLOs are a type of collateralized debt obligation that uses payments that have been pooled from multiple business loans.
It is difficult to compare the validity of wind projects, Haight stated, because the deals differ widely. However, he said, analyzing the revenue stream coming off a project should be the focus of judging if a project is financially viable or not.
A project should have a revenue stream that has a minimum base payment that depends on several factors, including the number of acres involved, the number of wind turbines that will be erected, and the megawatts of electricity that will be produced by those turbines. An annual escalation clause is usually included.
Also, a payment should include a percentage of gross revenue generated by the project and payments for roads and other infrastructure developments.
Some or all of those factors can amount to a meaningful annual payment to the landowner, Haight noted.
In addition to providing revenue, a wind turbine installation can increase the property value where it is built, Haight remarked, if the project involves reliable payments that produce a consistent revenue stream to the landowner.
Usually, that consistency stems from the fact that wind turbines and solar installations are long-term assets that produce renewable electricity that integrate well with natural gas facilities. While the financial prospects for wind and solar are rising, enthusiasm for coal-powered electric generation is fading, Haight said, and “there is no will for nuclear.”
Projects with less risk, what Haight calls “safe” deals, include those that involve utility companies, such as Mid-American Energy Co., which serves approximately 1.6 million customers in Iowa, Illinois, Nebraska, and South Dakota.
Also lowering the risk of wind projects are 10-year production tax credits and power purchase agreements. They both add safety to deals, Haight told Successful Farming in an interview after his presentation, because backers of the projects, which are mostly from Wall Street financial institutions, are less likely to let them fail. Usually, he added, smaller projects are less safe, but that doesn’t mean they are “unsafe.”
Risks to consider when examining a project include the potential wind power of a location, the quality of the wind turbines, the risks that stem from wildlife or environmental considerations, and the stranded asset risk from projects that have outlived their economic usefulness.
There also is a risk associated with decommissioning a project. “What happens to the assets when a turbine’s useful life is done?” Haight asked.
Solar project benefits include an ability to match a solar farm’s output with demand and the fact that there are no moving parts in a solar installation.
Payments can vary, depending on the value of the property where the solar project is installed. For example, in Texas, where land prices are relatively low, landowners are paid a percentage of the land’s value. In Midwestern states like Iowa, Wisconsin, and Minnesota, where land prices are typically higher, landowners are usually paid on a fixed-rate basis.
“I’m a pretty big fan of solar,” Haight said. “It’s just getting started.”