The Anatomy of a Wind or Solar Lease - Hackstaff, Snow, Atkinson & Griess, LLC

The Anatomy of a Wind or Solar Lease

anatomy of a wind solar lease Colorado’s commitment to reaching 100% renewable energy by 2040 has sparked a big push in alternative energy projects around the state.

It’s also brought in outside interest from alternative energy companies hoping to secure access to available agricultural land to set up wind and solar farms. This can be a nice benefit for farmers looking to earn passive income. But what exactly does a wind or solar agreement entail?

Wind or solar developers seek a long-term agreement with landowners to allow the company to construct and operate wind turbines or solar panels on the landowner’s property.

Electricity generated from these projects is sold to or consumed by the local utility company. Regardless of who owns the wind or solar development, the landowner is paid for the use of the land.

Wind and solar agreements, just like any contract, are typically lengthy and complex agreements. While landowner compensation is typically top-of-mind, there are many other questions a landowner should ask. For example, questions such as:

  • What uses of the land are retained by the landowner?
  • What restrictions will be placed on the landowner once the project is constructed?
  • What rights to build transmission on the property are granted?
  • Who is liable for the taxes if the wind solar improvements increase property taxes?
  • What is the landowner’s liability for events that occur on the landowner’s property?
  • What happens if the developer damages the landowner’s land, crops, or livestock?

These questions, and many more, should be addressed in the agreement. 

Due to the large scope and cost involved in wind and solar projects, wind and solar agreements are typically long-term agreements, often spanning more than 60 years.  

Wind and solar agreements can generally be broken down into four phases, each with their own rights and duties of the parties. The four phases are: the development term, the construction term, the operating term, and the decommissioning term. 

Four phases of wind and solar agreements

Development Term

This phase of the wind or solar agreement lasts between 5-10 years. During this phase the developer will investigate the property. They will evaluate the alternative energy resource, transmission availability, and conduct necessary studies (e.g., environmental, historical site, etc.). If a developer does not start constructing the project by the end of this phase the agreement will terminate. Landowners typically receive an annual per acre payment during the development term. The amount of the per acre payment will vary but projects with proximity to transmission lines typically receive higher amounts. 

Construction Term

This phase lasts between 1-3 years and is characterized by construction activities. This high-touch phase often requires constant communication between the landowners and the developer. Often landowners are paid a relatively small fee to address the disruption and inconvenience of construction activities. 

Operating Term

This phase is the longest of the project and lasts between 25-50 years. This phase is characterized by the project actively producing and selling electricity. During this phase, it is common for a developer to pay landowners based on the greater of the size (in megawatts) of the generating improvements installed on the landowner’s property or the number of the landowner’s acres subject to the agreement. The amount per acre is considerably higher than the per acre payment during the development term. In some instances, landowners may also be paid a royalty based on the production on their property. Additional payments to landowners include payments for roads, transmission lines, or other improvements installed on the landowner’s property.  

Decommissioning Phase

The final phase is the decommissioning phase which typically lasts 1-2 years. Here, the wind or solar improvements are removed from the property and the property is remediated. The wind or solar agreement should address the standard by which the developers’ remediation will be judged. During this period, it is possible that the developer will continue to pay an annual rent.  

Seek expert advice before entering into any wind or solar agreement

As described above, wind and solar agreements can be long and complex.  As such, it is important to seek the advice of a legal expert on renewable energy to ensure your interests (both long and short term) are protected.

The experienced team at Hackstaff Snow Atkinson & Griess, LLC can help you evaluate and negotiate agreements that are comprehensive and thorough.  Our team regularly handles wind and solar projects in Colorado as well as Nebraska, Wyoming and Texas.

Learn more about our Renewable Energy practice area.