Harvesting the W ind: The Agricultural Landow ner Perspective - - PowerPoint PPT Presentation

Harvesting the W ind:

The Agricultural Landow ner Perspective

Oklahom a W ind Energy Conference Decem ber 2 , 2 0 0 8

• Asst. Prof. Shannon Ferrell

shannon.l.ferrell@okstate.edu OSU Department of Agricultural Economics

Our topics today Our topics today

• Land Use Impacts:

What’s changed on the farm? the farm?

• The Contingencies:

Liability insurance Liability, insurance, and subordination, oh my! my!

• What Tools Might

Help? Help?

The Take-Away: “T ll ‘ h t ’ t ll ‘ ” “Tell ‘em what you’re gonna tell ‘em...”

• Landowners need to understand both the

Landowners need to understand both the benefits and burdens of wind energy development on their property. p p p y

• The wind industry is uniquely positioned to
• ffer both developer and landowner a win win
• ffer both developer and landowner a win-win

situation, if they understand their counterpart’s perspective counterpart s perspective.

• Education, transparency, and dialogue can go

a long, long way.

Land Use Impacts: Wh t’ h d th f ? What’s changed on the farm?

The Obvious:

Projects Take Up Space Projects Take Up Space

• The good news: a carefully constructed wind

g y power project can

– Provide a significant additional return the Provide a significant additional return the landowner AND – Leave a great proportion of the land available for g p p agricultural use.

• The slightly less optimal news:

g y p

– Projects will have an impact on use of the property. p p y

• NOTE: These are anecdotal examples.

Spacing Out:

The spatial impacts of projects The spatial impacts of projects

• American Wind

¼ section

Energy Association estimates total area

• f ≈ 60 acres/MW of

¼ section (160 acres)

• f ≈ 60 acres/MW of

capacity.

• ≈ 3 acres (5%) to

actual physical

• ccupation of land.
• ≈57 acres (97%) to
• ≈57 acres (97%) to

exclusion area for windflow preservation.

Image from Google Earth

Shadow ff Effect

Disrupts Row Orientation

Image courtesy Matthew Steinert

Disruption of Row Orientation Disruption of Row Orientation

Image courtesy Matthew Steinert, using Agleader SMS software

Inadequate Spacing From Property Line

32’ Grain Drill 42’ Corn Planter 60’

Image courtesy Matthew Steinert

Yield Loss Yield Loss

Must choose between leaving area unplanted or double planting large area.

Image courtesy Matthew Steinert

Lost Production Lost Production

Image courtesy Matthew Steinert

Zero Yield Due to unplanted Area

40 50 b /A i ld L D t O l 40-50 bu/A yield Loss Due to Overlap

Image courtesy Matthew Steinert, using Agleader SMS software

Irrigation Spatial Impacts Irrigation Spatial Impacts

• Changes to the

Changes to the configuration of irrigation systems h b i have obvious impacts.

• Mitigation is
• Mitigation is

possible, but change in cropping system may be needed.

• Aerodynamics +

t $ geometry = $

The Exclusion Zone: Not entirely exclusive Not entirely exclusive

Image courtesy Brian Hobbs, WFEC Image courtesy Brian Hobbs, WFEC

Image from Google Earth

An interesting spatial coincidence

Wi d D i C i 3 4 AND OWPI N l N M d l Wind Density Categories 3, 4, AND 5 at 50 meters – OWPI Neural Net Model U.S. Census Bureau, 1990-2000 Population Loss Counties Combined image courtesy Allen Finchum, OWPI and Dr. Steve Stadler, OSU Dept. of Geography

The Slightly Less Obvious: Erosion and Compaction Effects Erosion and Compaction Effects

• Construction disturbance

t i t ti l can create erosion potential (especially at given times of year). y )

• Changes to erosion control

systems can impact productivity productivity.

• Compaction (and

decompaction) matter. p )

• Increasing number of states

preparing guidelines for mitigating agricultural mitigating agricultural impacts.

The Unseen: “C

tibilit i k” f USDA

“Compatibility risk” for USDA programs

• Conservation Reserve

P (CRP)

• Wildlife Habitat Incentive

P (WHIP) Program (CRP):

– Environmentally sensitive areas

Program (WHIP)

– Enhance wildlife habitats on ag lands.

• Conservation Security

Program (CSP)

Assistance for resource

• Farmland Protection

Program (FPP)

Development /conservation – Assistance for resource enhancement – Energy conservation / renewable energy an allowed – Development /conservation easements.

• Grassland Reserve

P (GRP)

renewable energy an allowed use.

• Environmental Quality

I ti P (EQIP) Program (GRP)

– Conservation easements for native grasslands.

Incentives Program (EQIP)

– Enhance environmentally responsible production

The Unseen: “C

tibilit i k” f USDA

“Compatibility risk” for USDA programs

• The point of all this alphabet soup:
• The point of all this alphabet soup:

– Compatibility of the proposed project with th t b li bl t th any programs that may be applicable to the property should be determined AT THE OUTSET of the agreement or else risk OUTSET of the agreement, or else risk

• Forfeiture of future payments.
• Return of received payments (in some cases with

p y ( interest)

• Penalties.

– The plus side: virtually every program has a process for determining variances.

One more use issue One more use issue

• Landowners need to be sure to expressly

Landowners need to be sure to expressly reserve all uses of the property not directly necessary for the wind power project: necessary for the wind power project:

– Cropping Grazing – Grazing – Hunting/recreation Water rights – Water rights – Oil and gas development

“The Contingencies:”

Liability, Insurance, and Subordination, Liability, Insurance, and Subordination, Oh My!

Liability issues for the landowner Liability issues for the landowner

• Contractual liability
• Tort liability

Contractual liability

– Breach of landowner duties.

y

– Damage to property caused by ag operations. – Liquidated damages? – Exceptions for force majeure? – Third party liability. – Trade secret violation / tortious interference majeure? – Will landowner have resources to prosecute tortious interference. p developer for its breaches? Arbitration processes – Arbitration processes. – Choice of law.

Insurance Insurance

Start at the beginning: what are each party’s i d i bli i ?

• For the landowner:

Standard indemnity for

• For the developer:

What arrangements

indemnity obligations?

– Standard indemnity for common third parties (recreational leases). What insurance – What arrangements will be made to address common third parties? – What insurance coverage will be required? Will additional third parties? – Will landowner be a named insured? What about – Will additional coverage be offset by compensation? Proof of insurance by – What about assumption of premiums? – Proof of insurance by developer?

Risk of breaching pre-existing arrangements with other parties arrangements with other parties

• Tricky financial times; be wary of

Tricky financial times; be wary of anything that could trigger default and acceleration of payments.

• Could creation of an interest

without consent or involvement

• f lender be event of breach for

landowner? landowner?

– Often, the answer is “YES!”

• Lenders need to be involved
• Lenders need to be involved

early and often.

And speaking of lenders And speaking of lenders...

• Many agreements require a

Many agreements require a “subordination” arrangement.

Get in line behind developer and perhaps – Get in line behind developer, and perhaps developer’s creditors. – Frequent lender reaction: Frequent lender reaction:

• Farmers have to preserve

access to land equity access to land equity.

• Landowners (and lenders) need to be sure

t t t i t t i t to separate out interests in property.

What Tools Might Help? What Tools Might Help?

What might help: Surface Impacts Surface Impacts

• Education agricultural practices and

Education agricultural practices and conservation measures.

• Preparation and promotion of “best
• Preparation and promotion of best

practices” and standards of conduct. L d thi k “ ti i ti ” d

• Landowners: think “optimization” and

“opportunity.”

Biological Attenuation and Emergency Emergency Leveling System (BALES)

What might help: The Contingencies The Contingencies

Ed ti P l HUNGRY f i f ti

• Guymon (PREDCI): 550+ • Woodward: 145

Education: People are HUNGRY for information

• Enid: 370
• Perry: 200+
• Taloga: 124
• Buffalo: 112

y

• Cheyenne: 200+
• Arnett: 185
• Fairview: 100+
• Aline: 44
• Sentinel: 150+
• Knowles: 30+

and not just landowners but attorneys ...and not just landowners, but attorneys, accountants, and lenders too.

What might help generally What might help, generally

• Publicly-backed standards and/or

Publicly backed standards and/or guidelines (see MI LUGs for wind power)

Not regulations but publicly authored best – Not regulations, but publicly-authored best practices and guidelines.

• Codes of conduct: NY AG Ethics Code
• Codes of conduct: NY AG Ethics Code
• Regulatory responses

– “Low-hanging fruit:”

• Audit standards

A i lt l iti ti t d d

• Agricultural mitigation standards

Severance Issues Severance Issues

• First one must articulate the question:

First, one must articulate the question:

– Retention of rights to revenue from project Easement for unrestricted flow of wind – Easement for unrestricted flow of wind – Separation of right to grant permission for entry to property from right to occupation and entry to property from right to occupation and use of surface for other purposes.

• States tying wind development rights to
• States tying wind development rights to

surface: MN, OR, ND, SD. States allo ing se erance CA (implied in

• States allowing severance: CA (implied in

state appellate decision).

Sometimes the problems can be avoided if you just keep your avoided if you just keep your head up.

THANKS!

Shannon L. Ferrell

Department of Agricultural Economics Oklahoma State University shannon.l.ferrell@okstate.edu