Transcript Negotiating Wind Easements and Analyzing Comparable Sales

Negotiating Wind Park Easements
and
Analyzing Comparable Sales
Terry Argotsinger
Stalcup Ag Service, Inc.
P O Box 67
910 Flindt Drive
Storm Lake, IA 50588
712-732-6462
[email protected]
presented by
Justin Bierschwale
Bierschwale Appraisals
PO Box 154
517 College Street
Junction, TX 76849
Ph (325) 446-3052
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 Construction
1.5 MWh turbine
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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
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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
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$200,000 to $300,000 for permits
Application
Feasibility Study
System Impact Study
Facilities Study
459 to 884 days
Method of Negotiation
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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
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3 to 5 years
State mandates with limits – 7 years
http://www.dsireusa.org/
$3 to $40 per acre per year
Construction Phase
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Usually less than one year
One time payment
Crop Damages
Compaction
Access
Laydown areas
Crane paths
Operations Phase
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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
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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
Decommissioning
5 feet
400 cu yds
Performance 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 STUPID
CURRENT DEVELOPMENT
DEVELOPERS AREN’T STUPID
TIRED 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
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Anemometers
Research Facilities
Terrain
Neighborhood
Existing Turbines
Data, Data, Data
Regulations
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Siting
Visual & Noise
Wildlife Impact
Development Stages
County Zoning?
Safety?
Synchronization with Power Grid
Property Tax
Who All Gets Involved
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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
IRR???
10.4%
CF0
CF1
CF2
CF3
CF4
CF5
CF6
CF7
CF8
CF9
CF10
-$145,000
$20,000
$20,000
$20,000
$25,000
$25,000
$25,000
$28,000
$28,000
$28,000
$31,000
SALE DETAILS
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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
DEVELOPMENT TERM
OPERATIONS TERM
CF0
CF1
CF2
CF3
CF4
CF5
CF6
CF7
CF8
CF9…..
CF33
($301,257)
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THINGS TO WATCH FOR
RENTS
GROSS INCOME CALCULATIONS
Turbines
5
Year 1-7 Royalty
4%
Year 8-14 Royalty
6%
Year 15-21 Royalty
7%
Year 22-30 Royalty
8%
Turbines Capacity
1800
Wind Efficiency
35%
In Service
90%
Days (per month)
30
Hours(per day)
24
Available Capacity (Kwh)
1,166,400
Total Production (Kwh)
408,240
Price of Electricity (per Kwh)
$0.07
Gross Income (monthly)
$28,576.80
Line Loss & Other Costs (monthly)
3%
Adjusted Gross (monthly)
$27,719.50
Adjusted Gross (annually)
$332,633.95
Total Adjusted Gross
$1,663,169.76
ROYALTY PAYMENTS
YEAR 1-7
$66,526.79
YEAR 8-14
$91,474.34
YEAR 15-21
$108,106.03
YEAR 22-30
$133,053.58
BASE PAYMENT
$37,800
$46,800
$60,300
$69,300
Possible Expenses to Consider?
CALCULATE THE IRR
CF0
CF1
CF2
CF3
CF4
($301,257)
$640
$480
$320
$109,027
$66,527 $66,527 $66,527 $91,474 $91,474
CF15
CF16
CF11
CF12
CF13
CF14
$91,474
$91,474
$91,474
$91,474
CF22
CF23
CF24
CF25
$133,054
$133,054
$133,054
$133,054
CF5
CF6
CF17
CF7
CF18
CF8
CF19
CF9
CF20
CF10
$91,474
CF21
$108,106 $108,106 $108,106 $108,106 $108,106 $108,106 $108,106
CF26
CF27
CF28
CF29
CF30
CF31
CF32
$133,054 $133,054 $133,054 $133,054 $133,054 $133,054 $133,054
IRR = 17.36%
CF33
$133,054
SUBJECT DETAILS
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320 ACRES
ROYALTY PAYMENTS – SAME AS SALE
TERMS – SAME AS SALE
NUMBER OF TURBINES – 2
STAGE ON DATE OF APPRAISAL
– DEVELOPMENT
CONSTRUCT THE TIMELINE
DEVELOPMENT TERM
OPERATIONS TERM
CF0
CF1
CF2
CF3
CF4
NPV???
$320
$240
$160
$43,611
CF11
CF12
CF13
CF14
CF15
$36,590
$36,590
$36,590
$36,590
$43,242
CF22
CF23
CF24
CF25
CF26
$53,221
$53,221
$53,221
$53,221
$53,221
CF5
CF6
CF7
CF8
CF9
$26,611 $26,611 $26,611 $36,590 $36,590
CF16
CF17
CF18
CF19
CF20
$43,242 $43,242 $43,242 $43,242 $43,242
CF27
CF28
CF29
CF30
CF31
$53,221 $53,221 $53,221 $53,221 $53,221
CF10
$36,590
CF21
$43,242
CF32
CF33
$53,221
$53,221
APPLY IT
17% IRR
DEVELOPMENT TERM
OPERATIONS TERM
CF0
CF1
CF2
CF3
CF4
NPV???
$320
$240
$160
CF5
CF6
CF7
CF8
CF9…..
CF33
$43,611 $26,611 $26,611 $26,611 $36,590 $36,590 $53,221
NPV = $131,670
320 ACRES X $2,500/ACRE = $800,000
+ CV OF WIND LEASE:
$131,000
TOTAL 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