negotiating wind park easements and analyzing comparable sales presented by justin bierschwale...
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Negotiating Wind Park Easements
andAnalyzing Comparable Sales
presented by
Justin BierschwaleBierschwale Appraisals
PO Box 154517 College StreetJunction, TX 76849Ph (325) 446-3052
Terry ArgotsingerStalcup Ag Service, Inc.
P O Box 67910 Flindt Drive
Storm Lake, IA 50588712-732-6462
Take a look from their perspective first
Wind Project Development Process
Site Selection
Land Agreements
Wind Assessments
Environmental Review
Economic Modeling
Interconnection Studies
Permitting
Sales Agreements
Financing
Turbine Procurement
Construction Contracting
Operations and Maintenance
Locating Wind Parks
• Power Grid
• Wind Velocity• State and Federal Mandates (cap and trade)
• Tax incentives
• Power demand
• Will of the people
Mutual desire to make it compatible for everyone
Cost of Construction1.5 MWh turbine
• Blades $300,000• Generator $1,250,000• Transportation $225,000• Tower $330,000• Materials $400,000• Labor $400,000• Engineering, Dev., etc $80,000• $3,000,000 / 1.5 Mwh = $2,000/Kwh RCN• Deprec., O&M, Land rent, RE Tax – $60,000• Debt Service ?
Income Stream
• Electricity - $35 to $100 per Mwh at the hub
• Carbon Credits - $5 to $25 per mmt
• PTC/ITC/Direct payments - $.021 per Kwh
• Depreciation – 5 year equipment
Actual Production(1.5 MW Turbine)
• 4,000,000 Kwh x $.055/Kwh = $220,000• 4,000,000 Kwh x $.021/Kwh PTC = $84,000• 1.5 Mwh x 2,000 mmt CO2/Mwh x $15/mmt = $45,000
SO2, NOx – EPA clearing house for pollution credits
(Meets Electricity needs for 300 people/year)
The Queue
• Federal Energy Regulatory Commission - FERC• Independent Transmission System Operators - ISO
http://www.midwestmarket.org/page/Total+Wind+Generation
• $200,000 to $300,000 for permits• Application• Feasibility Study• System Impact Study• Facilities Study• 459 to 884 days
Method of Negotiation
• Get legal advice
• Individually
• As a group
• Trustee, LLC – Combine wind rights into one package if rights can be separated under state code
• Option, Lease, Easement
• Privacy clause – Agreement and Memorandum
Key Terms of Agreement
• 3 phases Development – Construction - Operations
• Rates• Site selection• Insurance• Re-powering• Decommissioning• Most Favored Nation
Development Phase
• 3 to 5 years
• State mandates with limits – 7 years
• http://www.dsireusa.org/
• $3 to $40 per acre per year
Construction Phase
• Usually less than one year
• One time payment
• Crop Damages
• Compaction
• Access
• Laydown areas
• Crane paths
Operations Phase
• 30 to 90 years• Fixed Payments - $2,500 - $6,000 per MW• CPI-U minimum 2%• Royalty – individual tower 3,4,5 or 6%• Royalty – prorated• Fixed plus royalty• Per acre plus royalty – 40/60• Renewable energy credits• Carbon credits• Roads, cables, buildings, substation
Site Selection
• Proposed plat
• Final plat
• Landowner approval
• The larger the turbine the fewer per farm
• 1.1 fall down distance – state code ?
• Setbacks from roads, dwellings
Insurance
• State code minimums
• $2,000,000 to $10,000,000
• Adjust to inflation
Re-Powering okay but renegotiate
Decommissioning5 feet
400 cu ydsPerformance bond for 1.5 x cost of removal
180 days
Most Favored Nation
• Same terms for all agreements
• Private negotiation - addendum
ELECTRIC TRANSMISSION SYSTEM OF TEXAS
FIRST WIND DEVELOPMENT
CONTINUED DEVELOPMENT
BOTTLENECK
DEVELOPERS AREN’T STUPIDCURRENT DEVELOPMENT
DEVELOPERS AREN’T STUPIDTIRED OF WAITING FOR EXPANSION
FP&L PRIVATELY BUILT TRANSMISSION
LINE
WHAT THE TRANSMISSION COMPANIES ARE SAYING
• $4.93 BILLION IN EXPANSION PROJECTS
• 2400 MILES OF NEW TRANSMISSION• POTENTIAL FOR 18.5 GIGAWATTS IN
NEW WIND POWER PROJECTS• AEP & DUKE ENERGY – 240 MILES OF
765 KV TRANSMISSION LINES, EST. $1 BILLION
• COMING ONLINE WITHIN 8 YEARS
ONSITE DATA
• Anemometers
• Research Facilities
• Terrain
• Neighborhood
• Existing Turbines
• Data, Data, Data
Regulations• Siting• Visual & Noise• Wildlife Impact• Development Stages• County Zoning?• Safety?• Synchronization with Power Grid• Property Tax
Who All Gets Involved
• Wind Developer
• State Government
• Local Government
• Federal Agencies
• Community Groups & Activists
• Environmental Organizations & Activists
• General Public
BACK TO BASICS--6 FUNCTIONS OF $1.00
1. Future Worth of $1.00
2. Future Worth of $1.00 Per Period
3. Sinking Fund Factor
4. Present Worth of $1.00
5. Present Worth of $1.00 Per Period
6. Annuity Worth of $1.00 TODAY
INTERNAL RATE OF RETURN• RATE THAT SETS THE VALUE OF FUTURE
CASH FLOWS EQUAL TO THE CURRENT VALUE
CF8 CF9 CF10
$28,000 $28,000 $31,000
CF4 CF5 CF6 CF7CF0 CF1 CF2 CF3
$25,000 $25,000 $25,000 $28,000-$145,000 $20,000 $20,000 $20,000
10.4%
IRR???
SALE DETAILS
• 640 Acres
• Sale Price $1,581,257
• Land Contributory Value: $2,000/Acre
• Residual Wind Lease Contribution: $301,257
• Number of Turbines: 5
• Lease Period at time of sale: Development
FINDING THE PIECES
CONSTRUCT THE TIMELINE
CF7CF0 CF1 CF2 CF3
X
CF4 CF5 CF6
X X
CF8 CF9….. CF33
DEVELOPMENT TERM OPERATIONS TERM
X X($301,257) X X X X X
THINGS TO WATCH FOR
RENTS
Turbines 5Year 1-7 Royalty 4%Year 8-14 Royalty 6%Year 15-21 Royalty 7%Year 22-30 Royalty 8%Turbines Capacity 1800Wind Efficiency 35%In Service 90%Days (per month) 30Hours(per day) 24Available Capacity (Kwh) 1,166,400Total Production (Kwh) 408,240Price of Electricity (per Kwh) $0.07Gross Income (monthly) $28,576.80Line Loss & Other Costs (monthly) 3%Adjusted Gross (monthly) $27,719.50Adjusted Gross (annually) $332,633.95Total Adjusted Gross $1,663,169.76
GROSS INCOME CALCULATIONS
YEAR 1-7 $66,526.79YEAR 8-14 $91,474.34YEAR 15-21 $108,106.03YEAR 22-30 $133,053.58
ROYALTY PAYMENTS
BASE PAYMENT$37,800$46,800$60,300$69,300
Possible Expenses to Consider?
CALCULATE THE IRR
CF6 CF7CF0 CF1 CF2 CF3 CF10
($301,257) $640 $480 $320 $109,027 $66,527 $66,527
CF4 CF5
$66,527 $91,474 $91,474 $91,474
CF8 CF9
$108,106 $108,106 $108,106
CF20 CF21
$91,474 $91,474 $91,474 $91,474 $108,106 $108,106 $108,106 $108,106
CF11 CF12 CF13 CF14 CF15 CF16 CF17 CF18 CF19
$133,054 $133,054 $133,054
CF33
$133,054$133,054 $133,054 $133,054 $133,054$133,054 $133,054 $133,054 $133,054
CF29 CF30 CF31 CF32CF22 CF23 CF24 CF25 CF26 CF27 CF28
IRR = 17.36%
SUBJECT DETAILS
• 320 ACRES
• ROYALTY PAYMENTS – SAME AS SALE
• TERMS – SAME AS SALE
• NUMBER OF TURBINES – 2
• STAGE ON DATE OF APPRAISAL– DEVELOPMENT
CONSTRUCT THE TIMELINE
CF6 CF7CF0 CF1 CF2 CF3 CF10
NPV??? $320 $240 $160 $43,611 $26,611 $26,611
CF4 CF5
DEVELOPMENT TERM OPERATIONS TERM
$26,611 $36,590 $36,590 $36,590
CF8 CF9
CF11 CF12 CF13 CF14 CF15 CF16 CF17 CF18 CF19 CF20 CF21
$36,590 $36,590 $36,590 $36,590 $43,242 $43,242 $43,242 $43,242 $43,242 $43,242 $43,242
CF22 CF23 CF24 CF25 CF26 CF27 CF28 CF29 CF30 CF31 CF32
$53,221 $53,221 $53,221 $53,221 $53,221 $53,221 $53,221 $53,221 $53,221 $53,221 $53,221
CF33
$53,221
APPLY IT
DEVELOPMENT TERM OPERATIONS TERM
$26,611 $36,590NPV??? $320 $240 $160 $43,611 $26,611 $36,590 $53,221
CF8 CF9….. CF33
$26,611
CF4 CF5 CF6 CF7CF0 CF1 CF2 CF3
17% IRR
NPV = $131,670
320 ACRES X $2,500/ACRE = $800,000+ CV OF WIND LEASE: $131,000TOTAL VALUE = $931,000
What Ifs: Justin’s Fuzzy Logic
• What if the Subject already had turbines producing and had 5 years of payment history?
• What if the Subject sat right next to an expanding wind farm but did not yet have a lease in place?
Things to Consider• Make certain you have measured value as it
contributes to the whole package, i.e. avoid flat out summation.– Extract Rates as they relate to contributory value, not as
they stand separate and apart from the land.
• Extract and Apply in the exact same way.– If you include bonus payments in extraction, include them
in application, etc.
• Step Away from the ledge at the end of the day and think through your conclusions. Are they logical?
QUESTIONS