Harvesting the W ind: The Agricultural Landow ner Perspective Oklahom a W ind Energy Conference Decem ber 2 , 2 0 0 8 Asst. Prof. Shannon Ferrell shannon.l.ferrell@okstate.edu OSU Department of Agricultural Economics
Our topics today Our topics today • Land Use Impacts: What’s changed on the farm? the farm? • The Contingencies: Liability insurance Liability, insurance, and subordination, oh my! my! • What Tools Might Help? Help?
The Take-Away: “T ll ‘ “Tell ‘em what you’re gonna tell ‘em...” h t ’ t ll ‘ ” • Landowners need to understand both the Landowners need to understand both the benefits and burdens of wind energy development on their property. p p p y • The wind industry is uniquely positioned to offer both developer and landowner a win win offer both developer and landowner a win-win situation, if they understand their counterpart’s perspective counterpart s perspective. • Education, transparency, and dialogue can go a long, long way.
Land Use Impacts: Wh t’ What’s changed on the farm? h d th f ?
The Obvious: Projects Take Up Space Projects Take Up Space • The good news: a carefully constructed wind g y power project can – Provide a significant additional return the Provide a significant additional return the landowner AND – Leave a great proportion of the land available for g p p agricultural use. • The slightly less optimal news: g y p – Projects will have an impact on use of the property. p p y • NOTE: These are anecdotal examples.
Spacing Out: The spatial impacts of projects The spatial impacts of projects • American Wind ¼ section ¼ section Energy Association (160 acres) estimates total area of ≈ 60 acres/MW of of ≈ 60 acres/MW of capacity. • ≈ 3 acres (5%) to actual physical occupation of land. • ≈ 57 acres (97%) to • ≈ 57 acres (97%) to exclusion area for windflow preservation. Image from Google Earth
Shadow Effect ff Disrupts Row Orientation Image courtesy Matthew Steinert
Disruption of Row Orientation Disruption of Row Orientation Image courtesy Matthew Steinert, using Agleader SMS software
Inadequate Spacing From Property Line 32’ Corn Planter 60’ Grain Drill 42’ Image courtesy Matthew Steinert
Yield Loss Yield Loss Must choose between leaving area unplanted or double planting large area . Image courtesy Matthew Steinert
Lost Production Lost Production Image courtesy Matthew Steinert
Zero Yield Due to unplanted Area 40 50 b /A i ld L 40-50 bu/A yield Loss Due to Overlap D t O l Image courtesy Matthew Steinert, using Agleader SMS software
Irrigation Spatial Impacts Irrigation Spatial Impacts • Changes to the Changes to the configuration of irrigation systems h have obvious b i impacts. • Mitigation is • Mitigation is possible, but change in cropping system may be needed. • Aerodynamics + geometry = $ t $
The Exclusion Zone: Not entirely exclusive Not entirely exclusive Image courtesy Brian Hobbs, WFEC Image from Google Earth Image courtesy Brian Hobbs, WFEC
An interesting spatial coincidence Wi d D Wind Density Categories 3, 4, AND 5 at 50 meters – OWPI Neural Net Model i C i 3 4 AND 0 OWPI N l N M d l U.S. Census Bureau, 1990-2000 Population Loss Counties Combined image courtesy Allen Finchum, OWPI and Dr. Steve Stadler, OSU Dept. of Geography
The Slightly Less Obvious: Erosion and Compaction Effects Erosion and Compaction Effects • Construction disturbance can create erosion potential t i t ti l (especially at given times of year). y ) • Changes to erosion control systems can impact productivity productivity. • Compaction (and decompaction) matter. p ) • Increasing number of states preparing guidelines for mitigating agricultural mitigating agricultural impacts.
The Unseen: “ Compatibility risk” for USDA programs “ C tibilit i k” f USDA • Conservation Reserve • Wildlife Habitat Incentive Program (CRP): P (CRP) P Program (WHIP) (WHIP) – Environmentally sensitive – Enhance wildlife habitats on areas ag lands. • Conservation Security • Farmland Protection Program (CSP) Program (FPP) – Assistance for resource Assistance for resource – Development /conservation Development /conservation enhancement easements. – Energy conservation / • Grassland Reserve renewable energy an allowed renewable energy an allowed Program (GRP) P (GRP) use. – Conservation easements for • Environmental Quality native grasslands. Incentives Program (EQIP) I ti P (EQIP) – Enhance environmentally responsible production
The Unseen: “ Compatibility risk” for USDA programs “ C tibilit i k” f USDA • The point of all this alphabet soup: • The point of all this alphabet soup: – Compatibility of the proposed project with any programs that may be applicable to the th t b li bl t th property should be determined AT THE OUTSET of the agreement or else risk OUTSET of the agreement, or else risk • Forfeiture of future payments. • Return of received payments (in some cases with p y ( interest) • Penalties. – The plus side: virtually every program has a process for determining variances.
One more use issue One more use issue • Landowners need to be sure to expressly Landowners need to be sure to expressly reserve all uses of the property not directly necessary for the wind power project: necessary for the wind power project: – Cropping – Grazing Grazing – Hunting/recreation – Water rights Water rights – Oil and gas development
“The Contingencies:” Liability, Insurance, and Subordination, Liability, Insurance, and Subordination, Oh My!
Liability issues for the landowner Liability issues for the landowner • Tort liability y • Contractual liability Contractual liability – Damage to property – Breach of landowner caused by ag operations. duties. – Third party liability. – Liquidated damages? – Trade secret violation / – Exceptions for force tortious interference tortious interference. majeure? majeure? – Will landowner have resources to prosecute p developer for its breaches? – Arbitration processes. Arbitration processes – Choice of law.
Insurance Insurance Start at the beginning: what are each party’s indemnity obligations? i d i bli i ? • For the landowner: • For the developer: – Standard indemnity for Standard indemnity for – What arrangements What arrangements common third parties will be made to (recreational leases). address common third parties? third parties? – What insurance What insurance coverage will be – Will landowner be a required? named insured? – Will additional Will additional – What about What about coverage be offset by assumption of compensation? premiums? – Proof of insurance by Proof of insurance by developer?
Risk of breaching pre-existing arrangements with other parties arrangements with other parties • Tricky financial times; be wary of Tricky financial times; be wary of anything that could trigger default and acceleration of payments. • Could creation of an interest without consent or involvement of lender be event of breach for landowner? landowner? – Often, the answer is “YES!” • Lenders need to be involved • Lenders need to be involved early and often.
And speaking of lenders And speaking of lenders... • Many agreements require a Many agreements require a “subordination” arrangement. – Get in line behind developer, and perhaps Get in line behind developer and perhaps developer’s creditors. – Frequent lender reaction: Frequent lender reaction: • Farmers have to preserve access to land equity access to land equity. • Landowners (and lenders) need to be sure t to separate out interests in property. t t i t t i t
What Tools Might Help? What Tools Might Help?
What might help: Surface Impacts Surface Impacts • Education agricultural practices and Education agricultural practices and conservation measures. • Preparation and promotion of “best • Preparation and promotion of best practices” and standards of conduct. • Landowners: think “optimization” and L d thi k “ ti i ti ” d “opportunity.” Biological Attenuation and Emergency Emergency Leveling System (BALES)
What might help: The Contingencies The Contingencies Ed Education: People are HUNGRY for information ti P l HUNGRY f i f ti • Guymon (PREDCI): 550+ • Woodward : 145 • Taloga: 124 • Enid: 370 • Buffalo: 112 • Perry: 200+ y • Fairview: 100+ • Cheyenne: 200+ • Aline: 44 • Arnett: 185 • Knowles: 30+ • Sentinel: 150+ ...and not just landowners, but attorneys, and not just landowners but attorneys accountants, and lenders too.
What might help generally What might help, generally • Publicly-backed standards and/or Publicly backed standards and/or guidelines (see MI LUGs for wind power) – Not regulations, but publicly-authored best Not regulations but publicly authored best practices and guidelines. • Codes of conduct: NY AG Ethics Code • Codes of conduct: NY AG Ethics Code • Regulatory responses – “Low-hanging fruit:” • Audit standards • Agricultural mitigation standards A i lt l iti ti t d d
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