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Basic term sheet key to wind energy lease
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By RICHARD PORTERHerald Staff Writer , From the Plainview Daily Herald
One of the most important parts of the process when negotiating energy lease agreements with developers is a basic term sheet, according to Lisa Chavarria.
Ms. Chavarria, a lawyer with McElroy, Sullivan, and Miller in Austin who specializes in energy lease contracts, was at the Friends Unity Center here Monday night to visit with area landowners about the increasing activity in the wind energy industry.
Ms. Chavarria said she is aware of seven development companies working in the area. The companies are large and well financed, but landowners still need to do their homework before entering into a lease agreement.
More than 200 people attended the meeting and among the issues discussed was the importance of a basic term sheet. Ms. Chavarria described it as a type of outline to follow in order to make sure all areas of concern were addressed in the negotiation process.
It should include items such as:
“¢Option and lease term
“¢Payments during option period
“¢Payment upon signing; lease/payments before commencement of construction
“¢Royalty clause
“¢Minimum royalty clause
“¢Surface damages/installation fees
“¢Substation/transmission fees
“¢Any other items that provide compensation or are important to the landowner (an example would be compensation for hunting lease income lost during construction).
Ms. Chavarria said it is particularly important to pay attention to the minimum payment clause because it is the default payment that is guaranteed to the landowner if the wind farm has to stop production for any reason. The landowner is paid either the royalty or the minimum payment, whichever is larger. However, the minimum payment is what the landowner can count on in any circumstance, she said.
In response to a question concerning the percentage amounts the royalty represents, Ms. Chavarria said typically royalties start out small. Wind energy projects require a significant initial investment. However, as that investment gets paid down over time, the royalty to the landowner improves.
She said landowners should negotiate for as much as they can get, but also keep in mind that the industry is very competitive right now. Development companies tend to go with the projects that pose the best opportunity for profitability and are the easiest to finance.
According to Dora Ross, director of the Floydada Economic Development Corporation, many of the people in attendance at Monday’s meeting expressed an interest in additional meetings to learn more about the wind energy industry.
Mrs. Ross said anyone with questions could contact her at 983-3319.
(Contact Richard Porter at 806-296-1361.)
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