Iowa Project

We are pleased to have finished work on an Iowa project.

LeaseGen advised the landowners in a coming project on their lease economics and the value of that future revenue stream.

We look forward to continuing our expansion in to other states.

Decommissioning Risk Factors

A number of articles related to the Canadian Cowley Ridge wind project note a decommissioning risk factor that isn’t often as obvious as something like turbines and wind resource — but it may be the most important factor to consider.

While the articles note an inability to source parts for the 23-year-old Kenetech turbines, they also note market issues (in addition to safety issues).

After the expiration of its PPA, the project began selling merchant, but apparently that revenue isn’t sufficient to overcome the O&M costs and safety issues.

The fact of this merchant project being decommissioned (and not repowered, even though the resource is noted to be good) is worth noting, especially if thinking about the growing number of US merchant projects and projects with short-term PPAs that may some day become merchant projects. Policy changes (e.g. elimination or restructuring of an RPS) and/or low gas prices would seem to present an enhanced decommissioning risk for these projects, and therefore would also impact the value of the related wind leases.

Another Repowering Shows the Rewards and Risks to Landowners when Projects are Continued

A February 17, 2016 NorthAmerican WindPower article shows again why it matters to consider repowering when analyzing a turbine lease revenue stream.

NAW notes Gamesa has received an order from Energiekontor (a German developer) for three 4.5 MW machines. These three machines will replace 11 one-MW turbines, doubling the projects’ output.

For a US landowner in this situation and under a royalty-based lease tied to gross revenue, this would mean a doubling of landowner annual income.

But there is also a large, hidden risk here. 11 units are being replaced w/ three, and likely (given larger rotors on taller towers) are being spaced farther apart than the predecessor units. If one landowner owns all of the land in this project, then this change will in fact be a windfall, increasing revenue significantly (not to mention reducing the burden on the land). However, if multiple (maybe even 11) landowners hosted the 11 turbines, then (depending on the lease terms) 8 of these landowners would lose most, it not all, of their lease revenue.

Therefore, repowering should be considered to assess enhanced and longer-term revenue prospects, but also relative to the potential for revenue elimination.

Another Short-Term Agreement for Part of a Project’s Capacity — Creating More Lessor Revenue Stream Uncertainty

Apex has announced a 12-year deal with a corporate offtaker (Steelcase) for 25 MW of a 150 MW project’s capacity.

Like with the recent EDF and Salesforce deal noted in a prior blog post, this arrangement creates an additional level of uncertainty regarding long-term project revenues. And this uncertainty trickles down to the lessor’s revenue stream.

These two announcements (Salesforce and Steelcase) probably cannot be deemed a “trend,” but they nevertheless force consideration of bifurcated PPAs when analyzing not just the then-current revenue stream to the landowner from that particular project, but also prospective future revenue streams (i.e. the value of a not-contracted revenue stream) for any project in a liquid market.

It will be especially interesting to track these trends as projects age. The fact of “12” years for both the Salesforce and Steelcase deals presumably has some connection to project financing. When financing is a smaller driver, will the terms of these deals become even shorter? Or will we see a trend toward merchant operation of part (or maybe even all) of a project’s capacity?

More Talk About Xcel’s Wind and Solar Procurement

Xcel has announced its intention to increase its combined wind and solar percentage to 35% of its energy mix.

Very positive news for wind and solar developers, especially near-term, because we have to think Xcel will procure most of this before the expiration of the extended PTC and ITC.

In the articles discussing this, one point stands out — that is Xcel’s intention to own 50% of these renewables. Meaning these renewables will not be procured under a PPA, and meaning there may be no landowner “royalty,” particularly if the subject lease does not include a mechanism for adjusting/addressing lease economics in the case of a utility project purchase.

Many leases, including those of the big developers, do not address utility purchase issues — maybe on the presumption that the landowner compensation will revert to the minimum payment in the case of utility ownership.

Regardless, this is more evidence of the importance of carefully reviewing the underlying lease/easement and the PPA (if you can get it) when analyzing a wind lease revenue stream, as utility ownership (which appears to be an expanding trend) will affect lease value.

Vattenfall Decommissioning – Importance of Considering the Turbine and Wind Resource

A January 25, 2015 Vattenfall press release states it is decommissioning a 10 MW offshore project.

The press release notes the project was commissioned in 2001.

Vattenfall also notes the particular turbine model is no longer in production, that acquiring parts was difficult, and that they have other project locations with better wind resources.

For landowners and their advisors assessing the value of their turbine lease revenue stream and the risks to that revenue, there are three take-aways from this decommissioning:

1) Projects are decommissioned early — Projects sometimes are decommissioned before the presumed end of their equipment’s useful life. We have seen what appear to be early decommissionings in the US, as well. While early US decommissionings are rare, it seems more likely this could occur more often as the industry expands and as projects age.

2) The turbine matters — Turbines based on proven equipment platforms and manufactured by strong OEMs (like GE, Vestas, and Siemens) will be easier to service, and it will be easier to source replacement parts for these machines. This influences project economics, which necessarily influences project viability and thus also lease value.

3) The wind matters — Vattenfall noted some of their other locations have better wind resources. The point is that projects with a weak wind resource may be less likely to be repowered, or as appears to be the case here that they may be decommissioned before the presumed end of their useful life.

Without seeing the project economics it is not possible to say which of the turbine or wind were the more significant factors in Vattenfall’s decommissioning decision. But it is nevertheless important to note that each of these factors mattered, and these factors matter, too, when considering the value of and risks to a landowner’s turbine lease revenue stream.

Salesforce PPA with EDF Noteworthy for its Term and Capacity Limit

The number of corporate PPAs is noteworthy, and positive.

It seems corporate procurement reduces stranded asset risk — by increasing the number of potential offtakers for a particular project.

The terms of these agreements, however, need to be considered, because they make the future revenue stream more uncertain than typically would be the case.

By example, the Salesforce PPA has a 12-year term, as opposed to a more typical utility purchase of 20-25 years. And the PPA only applies to a portion of the project’s overall size. These two facts create interesting questions, that shouldn’t be ignored, about forecasting the future revenue to the landowners’ that host the turbines for these projects.

It’s safe to think the project’s presumed useful life will extend beyond 12-years, and at least for the life of the PPA for the balance of the project’s capacity. But whether that additional capacity can/will be sold and for how much has to be factored in to the analysis of future revenue.

Salesforce Signs Contract with Texas Wind Farm

Another Positive Sign For Long-Term Role of Wind

While the recent PTC extension is worth noting — NERC’s recent report (referenced in the AWEA link below) is maybe more significant in terms of wind’s long-term role. Second to price, integration arguably has been the second-most significant issue for wind. But, as with wind pricing which has dropped considerably (and is being seen as offering long-term hedge value), integration appears to be improving. This suggests a continuing, long-term role for wind in the overall energy mix.

German Tall Tower Repowering a Sign of Things to Come?

A small German wind project (built in 1999) has been repowered with Vestas V112 machines — on 140 meter and 119 meter towers.

My thinking for some time has been that the German market is a good indication of where the US may or will be heading. It seems we’ve followed the Germans in increasing both wind and solar production, and with some limited repowering. If we continue to follow the German path, then maybe we can also expect taller towers.

Taller towers have interesting implications for landowners with turbines on their property. Firstly, bigger turbines, with bigger rotor diameters and on taller towers will certainly mean greater per-unit production. If the number of MW on a landowner’s property stays the same, and if the landowner is paid under a royalty structure, then this will mean greater revenue. However, taller towers (and bigger rotors) also likely mean greater spacing (which I think is already happening in the US), and for small landowners that host one or a few machines, this could mean the elimination of all turbine-generated revenue. As a project ages and as the value of repowering is considered, the associated increase or elimination of revenue is certainly something to consider.

More Utility Project Acquisition

Xcel’s acquisition of two RES projects shows the continued trend of utility wind project ownership — all suggesting wind will have a long-term role in US power generation, providing long-term revenue to wind lease owners.