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Tips for negotiating wind and solar leases

Leasing land for commercial wind and solar power developments is an opportunity for additional revenue that might someday come knocking on your door.

It’s a long-term commitment, so making an informed decision before signing on will go a long way toward smooth operations for you, your neighbours and the developer, says Jeana Schuurman with the Farmers’ Advocate Office (FAO), Alberta Agriculture and Forestry.

In response to a surge of calls over the past year from landowners with questions about wind and solar leases, the FAO has worked with others to pull important considerations into a guide, Negotiating Renewable Energy Leases, and offer workshops on this topic. While the guide covers many points that span borders, some aspects will vary from province to province because of differing regulations that developers must follow, highlighting the need to contact your government for specific information.

What’s driving developers’ interest in Alberta is the province’s new renewable energy target to add 5,000 megawatts (MW) per year of electricity generated from renewable sources (wind, solar, geothermal, hydro, biomass) to the grid by 2030, coupled with the move toward establishing a competitive capacity market to achieve the target by offering 20-year price support agreements for successful bidders.

Wind and solar leases are not the same as oil and gas leases governed by the province’s Surface Rights Act because the right of entry for developers doesn’t apply, but neither do some of the safeguards for landowners.

“In Alberta, you have the freedom to say no to having a wind or solar development on your land,” Schuurman says.

If you decide to say no, the developer may find another spot nearby in which case the project could affect you without providing any revenue. In some locations, landowners have agreed to split the lease revenue when a project on one person’s land has implications for several others.

The Alberta Utilities Commission (AUC) considers environmental, social and economic impacts in deciding if approving an application for any type of power plant is in the public’s best interest. It ensures that the developer engages with people in the project’s vicinity and that there is a fair review process for those directly or adversely affected by its decision.

Concerns could be related to the increase in local traffic during construction and maintenance, the appearance of the project on the landscape, effects on wildlife and habitat, shadow flicker from turbine blades, sun reflection from solar panels, restrictions on activities such as hunting and aerial spraying, implications for future developments on adjacent property, and potential property devaluation.

“Think of the full picture. Recognize that this is a community decision. Talk with your neighbours, lawyer, accountant and municipal government to get the full range of perspectives before signing a lease. Hearing their concerns and discussing how to address them will help prevent disputes in the long term,” Schuurman advises.

Leases will be for 25 to 60 years. The lifespan for most of the equipment is around 25 years, but the developer may be interested in re-powering the facility instead of decommissioning and reclaiming it.

Wind projects might require one acre for every MW of energy produced and the land surrounding the turbines can still be grazed or cultivated. Solar projects could need as many as seven acres per MW and the land will be removed from agricultural production.

As of April, the largest solar project application in the Alberta Electric System Operator’s connection process queue published on its website was a 150-MW facility, with most of the 40 applications being for smaller projects on a host’s site to supply on-site industrial needs. On the other hand, most of the 53 wind project applications in the queue were for connection to the grid, the largest being a 325-MW project.

The developers have to fulfill certain requirements before the application goes to the AUC for consideration. As of April, seven solar and two wind applications were in the works, with four solar and one wind plant approved over the past 18 months. The increasing interest in solar developments is particularly notable, says AUC’s Jim Law, because only two had been received over the previous eight years.

Lease payment

“We also want landowners to be aware that the compensation structure for oil and gas leases in the Surface Rights Act doesn’t extend to wind and solar,” Schuurman says.

Lease payments offered could be a fixed amount regardless of the amount of electricity generated, a variable rate based on output, or fixed plus variable.

The FAO recommends negotiating compensation with some fixed component to provide stability if output isn’t as strong as initially anticipated and a consistent payment from construction through the facility’s lifetime and reclamation. It could be beneficial to include a clause on periodically renegotiating the payment or a built-in inflation factor.

Before negotiating a long-term lease, developers typically ask for a right of first refusal or to negotiate an option to lease for at least three years to test the site’s potential. An option to lease doesn’t necessarily obligate the developer to carry out testing or enter into a long-term agreement with you.

Schuurman stresses that there are no industry- or government-funded programs currently in place as there are for oil and gas to ensure landowners receive unpaid rentals or to deal with orphaned infrastructure if a renewable energy company goes under.

Also keep in mind that the representative sent by a developer to negotiate the lease may not be a licensed land agent, therefore, not bound by the Land Agents Licensing Act standard of conduct that provides recourse if the representative doesn’t negotiate in good faith and follow all laws.

Farming activities

Signing a lease gives the developer “exclusive and undisturbed” right to use the land covered by the lease for project purposes as it sees fit, so be sure to identify any structures or land features that should not be disturbed. The developer will register a caveat on the land title and require easements for collector systems that tie into the grid.

Weed control has potential to become a bone of contention between companies, landowners, and neighbours if not clearly outlined in the agreement. The developer is responsible for weed control on the lease, but you will need to discuss specific requirements you may have regarding how and when weed control should be carried out. Oftentimes, companies will contract the landowner to do this job, as well as other general site maintenance such as snow removal.

The developer is also responsible for the cost of constructing and maintaining fencing necessary to protect the site and the agreement should cover any specific needs you may have, such as gates and cattle guards.

Establishing an access protocol for regular inspection and maintenance after the facility is in operation is another important discussion, especially if you have concerns such as the proximity of the project to your home, biosecurity for preventing crop or animal diseases, introduction of noxious weeds, or fire hazards.

Also address how disputes will be handled if either party fails to abide by the terms of the lease agreement. Mediation, arbitration or both are preferred over taking disputes to court because legal costs could very well be greater than the initial damage amount.

Have your lawyer review the developer’s insurance policy to make sure it is suitable for your operation, taking into consideration others who may come and go, such as custom operators, renters, or other leaseholders.

The FAO recommends negotiating thoroughly around reclamation. The Alberta government has added solar and wind projects to the list of activities requiring a government reclamation certificate upon completion, but as of April the provincial standards were not yet in place.

Soil testing before the project and after the initial disturbance is suggested as a way to help form a baseline if the land will someday revert to agricultural use. Some lease agreements only offer compensation for yield loss the year after reclamation even though it could take much longer for the land to yield to its former potential.

For more information, see Negotiating Renewable Energy Leases at www.farmersadvocate.gov.ab.ca, contact Jeana Schuurman at 780-427-7956, or visit the Alberta Agriculture website at: www1.agric.gov.ab.ca/$Department/deptdocs.nsf/All/agdex16246#questions.

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