Having a wind farm on your land may be an attractive prospect for landowners, however the agreements that landowners conclude with wind farm developers depend on a number of issues including, inter alia, tax planning, financing issues and location of the project. As a result, a landowner will usually enter into one of the following agreements with a developer:
Land Lease
When a landowner has a site suitable for wind development, typically a lease option is concluded between the landowner and the developer. The provisions of the lease would give a developer the exclusive right to carry out exploratory work and to apply for planning permission for the turbine. The developer would then have the option to lease the site and develop it in exchange for either fixed yearly payments, a percentage of the annual revenue received from electricity sales, or a combination of the two.
In such an instance the developer assumes all financial obligations and liabilities in respect of the project. The developer then forms an entity to hold the wind farm project, which is then either held by the developer or sold in various stages of development to the ultimate project owners who earn returns through tax incentives and the sale of electricity to power suppliers or consumers.
The lease would normally also stipulate that the developer retains ownership of the turbines and will have the right to use surrounding land for cables, electricity sub-stations as well as roads, and be entitled to grant these rights to others.
Joint Venture (JV) between Landowner and Developer
In this scenario the landowner enters into a JV with a developer to retain equity in the wind farm project. This transaction vehicle is commonly utilised when a landowner wishes to participate financially in the project beyond a basic lease of the land.
An entity is usually formed by the JV to ensure that individual landowners are not liable for debts and other claims incurred by the business (i.e. the landowners’ personal liability is limited to the amount invested in the company and their personal assets are shielded from risk).
The downside for the landowner in this scenario would be the considerable funding obligations he/she has towards the realization of the project. These costs would include, inter alia, the development stage (i.e. obtaining planning and grid consents), connectivity costs, turbine and tower costs, installation costs (EPC), commissioning costs, operating costs and decommissioning costs.
It is also common practice that a shareholder’s agreement is concluded regulating how business decisions will be reached, as well as providing for defaults in respect of the provision of a capital contribution by one of the parties. For example, such stipulations may refer to higher interest rates or buy out provisions. Similarly, the bringing in of outside parties to fund any gap may also be an option.
As with the land lease option, the same issues with regard to the realization of the wind farm project would apply to the JV in that the JV entity would, subsequent to its formation, either hold the project or sell it.
As is evident, option agreements, leases and shareholders’ agreements can be highly complex. Legal advice and assistance should accordingly be sought at the earliest opportunity.
C & A Friedlander Inc.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)