Two More Solar Analyses Completed

Happy to have finished two new solar lease analyses.

We built new model functionality for these analyses.

This new functionality allowed us to simultaneously assess the impact of different lease economic structures on the developer’s effective CAPEX and presumed target PPA price — this allowed the landowner to see how different structures could affect project pricing and thus viability.

Wildlife Risks and Revenue

We have seen threats to project and lease revenue from wildlife risks. In our opinion, significant wildlife risks could (at least in theory) derail an operating project or effectively prevent its repowering. More likely, it seems, wildlife risks would lead to curtailment strategies, like curtailment during low wind speed periods, when certain bat species migrate. This is the suggestion in the recent North American Windpower Article on the Hoary bat species. It is speculative to think that all operating projects will be curtailed for some period during the year due to bat risk; however, if doing a considered estimate of lease revenue value, then risks like those outlined in the recent NAW article should be considered. And other potential wildlife risks should be continuously monitored and considered, as well.


Storage — Project Worth Following

Interesting to note this Wind Tech Center project, and it will be more interesting to see the results of this study.

The scope of the study also suggests revenue features owners (particularly owners hosting turbines) should be capturing in their leases, because these revenue features will add long-term value.

Recent Solar Lease Revenue Analysis

Very happy to have finished a solar lease revenue analysis today.

In connection with a potential lease extension discussion, we compared the value of an existing lease to other, recent leases.

It’s interesting to see where rates are for these projects are and how they differ from rates just a few years ago and as between projects of different sizes.

This certainly is a dynamic market.

Interesting Data on Leading Edge Erosion

The numbers and studies mentioned in the article linked below show interesting potential for project improvement or degradation attributable to leading edge erosion. This is another factor to consider when analyzing turbine lease revenue. Over time, a two to seven percent production impact (not to mention a 25% impact) could have a significant effect on value.

Thank You All

Thank you for supporting LeaseGen!

We started our business to address a growing need – informed evaluation of wind lease revenue streams for people buying or selling land with turbines on it. Our core business is growing, and we are now working in related areas, including on evaluations of overall lease economic structures for landowners considering a wind or solar lease and on wind rights sales. And with over 75,000 megawatts of wind and over 35,000 megawatts of solar in the US (and more coming), our future is promising.

We also want to tell you about some of our developments. Our main focus in 2016 was to update our lease revenue models. With input from industry experts, we expanded our models to, for instance, include solar lease revenue valuations. We also added features that allow us to simultaneously evaluate different lease structures, under various scenarios and considering any number of risk factors.

Our expanded models were put to work in 2016. Among other things:

  • we evaluated future revenue in connection with a number of operating projects;
  • we evaluated future revenue in connection with multiple wind rights sales; and,
  • we advised landowners presented with wind leases on the value of different compensation structures, including for projects in the US and internationally.

We had modest business goals for 2016, but with your help and with the help of our industry expert consultants, we exceeded those goals. And we look forward to continued growth.

We appreciate your support this past year, and we wish you the best for 2017.


Brad and the LeaseGen team

PS: Please follow LeaseGen on LinkedIn or Twitter for periodic updates on different issues and trends related to wind and solar lease revenue valuations

Recently-Completed Wind Lease Revenue Acquisition Analyses

We recently finished analyses for an international energy company of three potential acquisitions, involving different projects’ lease revenue streams.

We analyzed projections using our project-specific datatsets and recently-updated model and advised the client on deal risks and structuring each acquisition. This work was completed considering each projects’ features and contractual and legal constraints.

Many thanks to our industry-expert consultants for helping us build the suite of tools that allowed us to perform these analyses.

Part 2 – Landowners With Turbines Pay Attention – Repowers May Affect Revenue

In an October 2016 post, we noted how repowers may affect landowner revenue, positively and negatively. An additional potential aspect of how a repower may affect landowner revenue is worth noting. This other aspect relates to potential power price impacts.

Firstly, and generally, most wind leases (and some solar leases, but solar is not relevant to this analysis) include a compensation mechanism whereby landowner payments are based on the project owner’s gross revenue. Gross revenue comes from power sales, which most often are made under a long-term power purchase agreement. These are long, cumbersome agreements, but usually will limit the amount of generation that will be purchased. This last point (caps on generation) is what could lead to a potential negative impact on landowner revenue in the case of a repower, due to likely negotiation requirements and current tax credit policy.

If a repower is to include additional generation, then that repower would require an amendment of the power purchase agreement. And you would expect that if a power purchaser was to agree to an amendment to add generation, then it would require an additional amendment of the power price (possibly, for the whole of the project) to match current rates, which are lower than were rates three, six, or 10 years ago.

At first blush, it may appear that any power price decrease would have to be directly (and equivalently) offset by increased production for the economics of the repower to work; however, this does not take in to consideration the most-recent production tax credit extension and the ability of the project owner to capture an additional 10 years of tax benefits in connection with the repower.

These additional tax credits could provide the project owner financial benefits more than adequate to overcome the negative effect of any power price decrease. But because landowners (generally) do not share in tax-credit benefits, the net effect to them with respect to their royalty compensation could be negative, overall, even if the same number of MW remained on their property and/or even if overall production increased.

Likely, most projects will not be affected by this scenario, and any effect could be de minimis; however, any landowner looking to purchase property with turbines on it should note this potential and should consult with an expert to determine whether this risk exists. And we at LeaseGen would be happy to answer any questions regarding this or any other issue.

Landowners With Turbines Pay Attention — Repowers May Affect Revenue

An October 7, 2016 Wall Street Journal article notes project owners are using the recent Production Tax Credit (PTC) extension to repower (generally, replace turbines at) existing projects.

These repowers may mean unexpected changes to landowners with turbines on their property, particularly those landowners paid under a royalty structure (and really also for landowners paid on a per-turbine or per-megawatt basis).

For landowners paid under a royalty structure, the overall effect of a repower could be positive, with per-turbine production increasing, yielding more revenue. At the same time, landowners should expect repowers will mean fewer larger turbines in the place of more smaller turbines, creating the possibility the number of installed megawatts on a landowner’s property will decrease. And a decrease in installed megawatts will have a negative effect on revenue.

With projects to be repowered in the coming years based on the recent PTC extension, landowners now or near-term anticipating any transactions (estate work, property sale/purchase, wind rights sale, …) based on turbine lease revenue should determine whether the pertinent project is likely to be repowered. An owner may not want to price his revenue stream disregarding production that will be improved, and a buyer will not want to pay for production that may be eliminated.

LeaseGen has developed strategies for addressing these issues and would be happy to answer your or clients’ questions on these topics.

Wind Lease Revenue Considerations – Future Wind Power Price Drops?

A noteworthy report has been published related to future wind power costs. The report is a summary of an expert elicitation on wind power costs prepared by Lawrence Berkeley National Laboratory.

Based on 2014 costs, the results of the survey forecast the levelized cost of wind energy may drop by 24-30% by 2030 and by 35-41% by 2050.

While these dates are 14 to 34 years away, this is generally within the term of wind leases now being presented for execution and within the term of many wind leases now in place. (With one exception, all wind leases we have reviewed in the last twelve months have had a term (extensions included) of 40-60 years.) Moreover, these drops would occur incrementally over time, therefore having some effect on all projects built over the next one to 34 years.

For most landowners, lower costs may be significant, because most wind leases include a royalty-based compensation mechanism that is tied to the price of the power sold. To the extent the drop in costs results in lower wind power prices, then the royalty to these landowners will be lower, as well. And this reduced royalty will affect revenue and the overall value of the wind lease.

There are many other considerations to keep in mind related to lower costs, two of which come to mind, immediately.

  1. Part of what makes up the forecast overall drop in levelized costs in the report is increased production. And under a general royalty structure, increased production means greater revenue (although at a lower price). This greater production would not make up for all that is lost in a royalty due to a 20% drop in power prices, but it will shave some of that difference.
  2. Possibly more significant would be the elimination of federal incentives. If wind power prices fall considerably, then there is a stronger argument for the elimination (or maybe better said “non-renewal”) of federal incentives. Current wind power pricing depends on available tax credits and depreciation. Without these incentives, presumably wind power prices would have to increase (especially for new projects) for project owners to realize their required returns, and this could eliminate much (if not all or more) of the negative effect of reduced costs on royalties.

Whether production increases or whether incentives are eliminated, as well as whether wind power prices will fall, and the effect of natural gas and solar pricing, … are all speculations. This is not to say the recent report should be disregarded. To the contrary, it should be considered, because it shows factors that may bear on wind lease revenue and that thus affect wind lease value.

The report is especially meaningful for landowners now looking at new leases. LeaseGen has been consulting on new wind leases in different areas of the Country (and internationally) relative to lease economics. Some developers (really one in particular we have seen in 2016 and one other in 2015) seem to have adjusted their overall lease economic structures in a way that accounts for lower power prices. What matters to the landowner is modeling these economics considering prospective pricing and production, to be sure the projected revenue is adequate. Too often, it seems, landowners and their advisors rely on “what the neighbor is making.” Power prices have already fallen too much for this approach to make any sense. Instead, a considered approach is required, looking at royalty percentages considering power prices and potential production, as well as alternative compensation mechanisms.