City Could Get Millions for Wind Farm. Can Yours Also?

What Happened?

The city of Cheyenne, Wyoming, is thinking about leasing city-owned property to a wind energy company, in return for about $2 million per year in royalties.

Who Cares?

Wind farms have been extremely lucrative for certain municipalities, and are increasingly being considered as states look to meet mandates that require them to consume energy from renewable resources; California, for example, must purchase one-third of its energy from “clean” sources by 2020. And though most municipal wind farms don’t drive direct long-term jobs, they do provide cold hard cash in the form of lease payments.

The Details

The Cheyenne proposal came from a wind-power development firm, which wants to build a 120-turbine wind farm on a city-owned ranch. The proposal would not cost the city a dime, and would pay the city a minimum of $72 million in royalty payments over a 30-year term, according to reports; if California were to purchase some of the wind power, royalty payments could exceed $100 million. The city’s ranch, currently used for grazing, is approximately 17,000 acres; the wind farm would take up about 1 percent of the existing space.

The Pros

The biggest pro is the long-term lease income. The city would also generate about $36 million in property taxes over the 30-year life of the lease, according to reports. And since the city is not required to make any financial investment, it has little downside risk. In addition, the mayor of Cheyenne has been courting wind turbine manufacturers and other businesses to the region—the wind farm could facilitate or complement that strategy. Finally, since the site is relatively isolated, it likely won’t face the opposition from neighbors that other wind farms have provoked, such as the infamous battle in Massachusetts over the Cape Wind project.

Cons

Wind-farm projects aren’t easy to get completed, and they typically take years. The project must pass regulatory hurdles, and this one may be complicated by the fact that the city’s ranch was a former nuclear missile site. Exhaustive environmental studies will also be required to gauge site suitability and wildlife impact.

Financially, wind farms may provide a spending bump during construction, but that period is typically less than 12 months; according to reports, wind farms provide only few long-term direct jobs.

In addition, the political landscape and the renewal of tax credits for wind farms could play a role in the project’s success; an existing tax credit is set to expire at the end of the year. The construction of transmission lines is also an issue, although the city notes that new transmission upgrades are already planned, and some have been fast-tracked. And as noted above, neighborhood opposition could rear its ugly head; already one resident has argued that wind towers will diminish the skyline.

Other Experiences, Deals

In rural Kansas, which is the second windiest state in the nation, wind farms have been a “cash crop.” Kansas Governor Sam Brownback has made wind a cornerstone of his economic platform, and the state is expected to double its wind energy production before the end of the year. According to reports, some of the financial remuneration packages in Kansas and elsewhere have been as follows:

• Gray County, Kansas: The first of four wind farms is operational. Landowners expect to see $2 million per year in lease payments; local governments will see $1.2 million. The county commissioner warns that local governments only get the deal they negotiate, so they should be firm and aggressive; the county originally negotiated $350,000 per year in lieu of taxes, but the deal only lasted 10 years. As noted above, only a handful of full-time jobs were created long-term.
• Cloud County, Kansas: A single wind farm pays about $540,000 in lease payments to local farmers, and $300,000 to local governments. As in Gray County, a commissioner there also had some regrets over the deal that was negotiated, wishing that more money had been negotiated without limitations (under the current arrangements, money from the wind farms can’t go into the county’s general fund, but must be spent on economic development).
• Missouri: Seven wind farms in Missouri have yielded $1.3 million in lease payments per year, and $2.6 million in property tax payments, according to a the American Wind Energy Association.
• Michigan: A recently executed lease in Muskegon County, Michigan, will pay $100,000 just for the exclusive rights to investigate the construction of a wind farm. The five-year deal will explore the construction of the wind farm on the county’s wastewater site.

Lessons and Considerations

For municipalities considering the leasing of city-owned property, there is much to consider. The tax-credit renewal mentioned above is critical, and most cities are taking a “wait and see” approach. Either way, municipalities with existing wind farms clearly note that it is critical to negotiate the terms you want early; it’s nearly impossible to change them later.

To get started, consider joining one of the U.S. Department of Energy’s Wind Working Groups, which are statewide efforts to support development of wind farms. According to the Sustainable Cities Institute, assessing feasibility is a first step, and state energy offices can help determine areas with high potential.

A thorough report on Wind Turbine Lease Considerations for Landowners is a very good resource; though written for private landowners, many of the key considerations are relevant for municipalities. The document, published by North Dakota State University, addresses lease duration, compensation models, tax matters, energy credits, liability considerations, and more. A more legal view—though also focused on private landowners and Iowa, specifically—still includes some interesting national data and generic contractual issues.

A great summary of community objections and resistance to wind power was published in February; however, the document requires a purchase from Sustainability: The Journal of Record.