Thursday, July 19, 2007

Wind Resource Compensation

The graphic to the left lays a foundation for discussion over how an equitable resource-based compensation formula could be used. Note: you may click the image for a larger view.

This is using a 100 meter rotor diameter ("rd") turbine. The arrows show the most pronounced direction of the wind and the dashed lines reflect a 45 degree angle that encompasses most of the directional variation in the two seasons, summer and winter (Red River Valley). The wake extends 10 times the rotor diameter; however, the small erosion of wind resource between 8 and 10 times the distance from the rotor might arguably allow for a distance of 8x rotor diameter.

The green curved lines to the side are 4x rotor diameter reflecting the disturbed wind lateral to the turbine and therefore the diminishment of prospects for having wind turbine development within that distance.

The total acres covered are: 305.7. The wind turbine itself takes at most 2 acres of land out of agricultural production. Furthermore, a farmer will have that 2 acre obstacle to plow and plant around.

A common lease/easement compensation for a 1.5 megawatt wind turbine (by those who negotiate) is $5,000 per annum. As it now stands, only the owner of the real estate upon which the turbine is located is compensated. As you can see in the graphic, this means that the owner of the NW quarter in Section 4 loses his wind resource asset without compensation.

Oil Comparison

The practice of compensating only for where the turbine is located is quite like my allowing and being fully compensated for an oil well located on my property that sucks the oil out from under the neighbors land without compensating them - something that existing regulations do not allow. In grabbing all of the oil under the neighbors property, I might argue as some have, that I was lucky enough to be the one who received the well and that is just how life goes. The "I'm lucky and you are not" argument has been used. It amounts to "because I am lucky, I have the right to take your wind resource without compensation."

Toward a Solution

We should view the $5,000 per annum as an amount that could compensate for ALL of the assets consumed. I propose, for the sake of discussion, that all who contribute resources consumed by a turbine (or at least parties equaling something above 75%) negotiate to do a deal. Just as is the case with oil, if one minor party refuses to negotiate or come to terms that the others want to accept, that party is compelled.

I suggest that 25% of the amount provided for, in this case, a 1.5 MW capacity wind turbine be for the real estate (land upon which the turbine is located) and 75% be for the wind resource.

Therefore, the wind turbine site owner receives $1,250 per annum for the real estate resource consumed. However, the site owner also gets his share of the wind resource consumed. The 305.7 acre wind field owners receive collectively $3,750 or $12.27 per acre. In the case illustrated, the owner of the land upon which the turbine sits also has about 56.2 acres of wind resource consumed and would therefore receive an additional $689.57 per annum for wind resource. The owner of the NW quarter of Section 4 whose wind resource is almost entirely consumed, would have about 116 acres of wind resource taken, allowing for a compensation of $1,423.32 per annum. Now, given that this last party is being compensated rather fairly for the turbine placed on the neighbors land, there should be absolutely no gripe. Yes the NW/Section 4 party is unlikely to host a turbine on their land, but then, they don't have to plow and seed around the road and pad for the turbine either. Fair deal.?

See next post.

Tuesday, July 17, 2007

Landowner Losers: Wind Resource

Note: same scale as previous graphic, this is four sections (numbered 1 - 4) of land (grid), divided into 4 quarters each (labeled NW, NE, SW, SE). The little round circles are wind turbines using 100 meter rotors and the dashed lines are the wake of disturbed wind (extending 10x rotor diameter) behind the turbines when the wind is blowing from the two seasonal prevailing directions in the Red River Valley near Fargo.

Currently wind resource lease/easement compensation is entirely provided to the owner of the land beneath the turbine. However, once wind hits a turbine its power potential is diminished until it has time to repair to its previous strength. Sailors call this turbulence behind objects (like a sail) "dirty air." It is also referred to as a "wind shadow" or "wind wake."

The placement of a turbine upwind (in either of the seasonal prevailing wind configurations) can materially effect the value of the wind resource downwind. It is possible that a neighbors wind resource rights can be rendered worthless by the turbulence caused by a neighboring upwind turbine. Put more bluntly, the ability to develop your wind resource may be eliminated entirely without compensation by the placement of a neighboring upwind wind turbine.

In the above graphic layout of four sections of land, the yellow quarter-sections are parcels that will have their wind resource effectively stripped, without compensation, by a turbine on another quarter section. The darker, peach colored rectangles are 1/8th sections that would lose their wind resource without compensation.

We must move to resource-consumption-based compensation models. This would value the wind resource consumed - meaning the wind disruption caused to neighbors as well as the real estate the turbine is sitting on and the need for a farmer to navigate tractors and equipment around that turbine.

I will, for discussion sake, present thoughts on how such compensation might be structured in the next postings. I welcome and encourage commentary that is aimed at bringing more equity into the equation.

Wind Poaching: Existing Lease Practices

The graphic to the left is to scale. The grid in the background represents four sections of land or 16 quarter-sections. You are looking down at the land. The little round circles are turbines - the size of 100 meter rotor diameters. The angled dashed lines extending up and down, ending at the red borders or caps, show the length of disturbed wind - wake turbulence (10x rotor diameter) - or distance it takes for the wind to repair its flow to full velocity behind a turbine. You will note that they extend to the North-North-West (NNW) and to the South-South-East (SSE) of each turbine. That is because there are two prevailing wind directions in most places and here in the Red River Valley they tend to be out of the NNW in winter and out of the SSE in summer. The amount of time the wind comes from other directions is not worth noting. You will note that most windfarms have turbines stretching out on an angle to reflect these prevailing wind directions. They will place the turbines for more apart upwind and downwind from each other than perpendicular to the prevailing winds.

Currently, leases offered to landowners are only for where the turbine tower is actually placed - turbine real estate. I know of no developer who writes a lease based on consumption of the wind resource. By "consumption of wind resource" I mean the downwind turbulence until the wind repairs to full speed. Look in the bottom right four squares or four quarter-sections. Note that the SW quarter-section of Section 4 is unlikely to ever realize wind development on their land because of the coverage of turbulence from the turbines placed on the NW quarter-section. The SW quarter-section landowner loses all his ability to develop wind without compensation unless the landowner of the SW quarter-section is the same as the landowner of the NW quarter in Section 4. This is true of several landowners in this layout. Of the 16 quarter sections in this graphic whose wind resource is effected, only 7 quarter-sections will receive payment.

This practice is quite like the old practice in oil fields of paying only the landowner where the well head is located for oil extracted from a large pool under several landowner's property. It is neither right nor fair. The taking of someone's wind resource without compensation might be actionable. Unfortunately developers and the American Wind Energy Association (AWEA) know this and know that litigation in the wind fields will not be good for the industry. If litigation is to be avoided, we must change the wind lease terms to reflect the total resource consumed not just the real estate.

More coming on this topic in the next couple posts......