BLOOMINGTON, Ill. — Good contracts with wind and solar companies can increase the value of farmland, experts said at the release of the 2019 Illinois Farmland Values and Lease Trends Report in March.
For the first time in their annual report, the Illinois Society of Professional Farm Managers and Rural Appraisers noted there were two sales of farmland with wind turbines in central Illinois. A 316-acre tract with two towers sold in January 2018, and 114-acre tract with one tower sold in December.
“Both tracts brought a premium to farms in the market without wind towers. The estimated increase was roughly $750 per acre for each tract when factoring out all the other variables,” the report said.
Both properties were on highly productive Macon County land. The larger tract, with 97.6 percent tillable acres, sold for $11,000 per acre. The 114-acre tract, with 87.1 percent tillable acres and some CRP land, sold for $10,721, the report said.
More to come
A commercial developer in Columbia, Illinois, is seeking permission to install a wind farm along a 14-mile stretch of the bluffs above the Mississippi River bottoms in southwestern Illinois, said Dale Kellermann, First Illinois Ag Group, in his report about southwestern Illinois.
The wind farm would span from Valmeyer to Fults and would include about 50 towers with blades reaching 600 feet tall. For comparison, the landmark St. Louis Arch is 636 feet tall, he said. The estimated cost is $220 million.
In addition to the usual challenges, the proposed location on the bluffs in Monroe County has areas made of karst soil, which is eroded limestone. Negotiations are ongoing, he said.
Many farmers across the state have also been approached by solar companies that want to develop in Illinois. Such projects do take a long time to get going, Kellerman said.
The right deal
Brad Haight, a Colorado lawyer who has invested in solar and wind farms and is the founder of LeaseGen, gave farmers some things to think about in negotiating leases with energy companies.
Working in Colorado in 2012, he realized there was a need for a good model to appropriately value land with wind or solar energy leases. He developed the model with the help of meteorologists, financiers and wind companies.
It was needed, in part, because there is no such thing as a standard energy lease on farmland, he said.
“I’ve done between 300 and 400 different wind leases around the country,” he said. “Lease rates are all over the field.”
Some of the early leases offered poor terms for the landowners, he said. They have improved considerably over time — offering payment per megawatt with increases over time and also royalties.
Getting paid a royalty is a benefit, but they too vary greatly, Haight said. One farmer gets 3 percent royalty continually, another starts at 3 percent and may go as high as 8.5 percent of gross revenue.
Some agreements pay by the acre, which may be a fair arrangement, others offer a floor price.
Farmers are looking for long-term revenue and things change, he said, so “look at the deal, don’t stop at the money.”
He cited an example of a big wind company that had some of its equipment destroyed during an ice storm in 2014. While the storm only took out a few towers, it decommissioned the whole project.
When agreeing to a contract, he said it is also important to make sure the project is connected with dependable companies. It’s important to know who is running the operation, he said, citing an example where a small company didn’t get the right forms and couldn’t pursue the project. Another in Montana did not do its homework and was turned down for its proposal because it didn’t take into account the golden eagle’s habitat.
He said to be aware of clauses in the contract about decommissioning. He hasn’t seen any turbines abandoned, but he said decommissioning securities should be part of the negotiations.
As the industry grows, can wind farms be economically viable without a tax credit?
“Yes I think so,” Haight said. He believes companies will still make profits as tax credits are phased out because there is a supply chain in place.
“It’s appealing for an industry to have certainty,” he said.