Wind Farm Extension Renegotiation Tools For Landowners
 Topic: independent landowners |  Read Time: 6 mins |
 Landowner type:Independent landowners | Institutional landowners |  Energy: Onshore wind |
3rd July 2023Is your wind farm project lease coming to an end and your site operator has decided to extend/continue the project? If so, you may be wondering what wind farm extension renegotiation tools you can use to achieve success. These are a few tools that you may want to use as a landowner to secure fair terms with your site operator.
When your project’s lease is coming to an end, it’s time to think about renegotiating your wind farm extension lease agreement. Although you probably haven’t touched your lease for up to 30 years, you can still approach the extension lease renegotiation process with confidence.
If nothing else, renegotiations allow you to radically change your lease to reflect current market conditions.
For institutional landowners, it doesn’t matter whether your team has drastically changed or remained the same throughout a project’s life.
To succeed at the renegotiation stage, you must be armed with facts, figures (such as current market rents and the net present value of your site), as well as a strategic approach.
But what other tools can you use to shift terms in your favour?
Here are six you’ll need to turn your renegotiation process into a smashing success.
Six Winning Wind Farm Extension Renegotiation Tools
In my experience with landowners, I’ve found that the following six tools will help you achieve the most favourable outcome possible.
From knowledge of market rent to hiring a team of experts, these tools will help you be prepared, which is always a good idea. And as terms and market behaviour will have changed significantly since your last lease was signed, being strategic is key.
1. Use knowledge of current market rent to your advantage
The first of the wind farm extension renegotiation tools you should consider is market rents.
It’s not uncommon that site operators will only know about the rents paid within their own portfolios. So you’ll need to have evidence that market rents are significantly different across the board if you want your site operators to cough up the cash.
Assessing this information may take time, but it’s always worth the effort.
It’s always best to be proactive and not reactive. If you do your research and have solid facts and figures to hand, you’ll be in a strong position when it comes to your renegotiations.
And as the market will have moved along significantly in your favour over time, you should be in a great position to up your rent.
If you’re trying to figure out market rents across the board, I suggest:
Researching the possibilities on the market
The first thing is to identify and make a list of all the sites in the UK using the same technology as you.
Then, you’ll want to make sure they have the same specifications as your site. For example, there’s no point comparing hydro sites with landfill or solar sites. This should help you develop a clearer picture of the rental possibilities in the area and within the same sector, and puts you in a much stronger position when negotiating.
I remember helping farmer David Lindow with the comprehensive data he needed to receive a fair royalty rate in line with the current market.
If you want to learn more about how we helped him maximise his site’s potential, check out our case study with David Lindow.
Documenting key information
A Lumify SiteScan™ can help assess market rents and the current functioning of your site.
But it’s also important to create an operational report of any key information you find along the way. This will support your rental decision and give you leverage during the renegotiation process.
Your operational report can include, but is not limited to:
- The amount of rent paid per year
- The amount of electricity generated per year
- The number of years the site has been operational
- The age and location of each site
- How much equipment still needs to be paid off
If you find information that can show an increase in value for your site, you can use this to propose a suitable rent to your tenants.
2. Demonstrate the net present value of a site
Before the renegotiations, you’ll want to calculate the net present value of a site, because site operators will need to achieve a certain target rate of return from the project.
By having a clear idea of a site’s future income potential, you will know how much room there is for negotiation. With these figures in hand, both parties should be able to achieve a desirable rate of return from the project, so everyone’s a winner.
How to calculate your site’s net present value
- Obtain a breakdown of the electricity generated by your site each month for the last 15 years.
- Use this data to identify seasonal trends and the current stage of the project in its life cycle.
- Identify a shortlist of comparable sites.
- This list should focus on sites with the same technology, size, location, operational conditions and equipment.
- It’s also important to focus on the project at the same point in its life cycle as yours.
- Compare and reconcile the output expected from steps 1 and 2.
- Forecast the future income and costs expected over the next 10 years alongside expected future energy prices and running costs.
3. Know your lease end dates
It’s never a good idea to wait until the last minute to approach your lease renewal. And that’s because it can be detrimental if it ends without a formal agreement. It also puts you on the back foot when it comes to renegotiating your lease with minimal time to spare.
If you start planning early, you’ll be able to continually monitor market conditions and take advantage of changes that will benefit you.
If you’re scrambling for information close to a deadline, you won’t come to the table with the strongest weapons in your arsenal.
In my experience, it’s always best to renegotiate early, which leaves room for disagreements and discussions that you can resolve before your lease expires.
4. Form a solid plan for the renegotiation process
Very few site operators are completely unreasonable. But that doesn’t mean that you shouldn’t have a solid plan in place when your lease is coming to an end.
By having a step-by-step plan to follow when your lease is ending, you can avoid the pitfalls that arise when having to rush.
In my opinion, it’s one of the most important renegotiation power tools you can have.
It’s a given that you should familiarise yourself with your current lease agreement. But you should also talk at length with your site operator about their plans to put you on the same page.
5. Consider your financial terms carefully
This is one of the most important wind farm extension renegotiation tools there is.
Although you can research current market rates and get stats about your site, there are still several variables to consider.
For example:
- Will your wind farm extension affect any livestock you have around your site?
- Will you be adequately compensated for the increased use of space?
- What kind of payment arrangement are you planning to choose for your site?
- Will you need to consider annual royalties that will periodically increase over time?
- Have you taken steps to reduce liability and protect your property rights?
- Have you taken inflation into account?
- Have you considered the fees involved with litigation or legal expenses?
These are all important questions that could impact how you approach renegotiations, so consider them carefully before diving in.
6. Hire a team of experts to help you negotiate properly (+ add value)
Many of these steps will be tricky to navigate alongside your day-to-day tasks. So it’s worth hiring a team to help.
Whether that’s solicitors or land agents, these experts are one of the major wind farm extension renegotiation tools that will add value to your process. Not only will they have up-to-date information about market conditions and legal changes, but they’ll make things so much easier.
Plus, the complex transactions and long-term nature of these leases aren’t necessarily things you’ll want to figure out alone.
With your research and their market knowledge, you’ll feel empowered to strive for a much better deal.
Will You Use These Wind Farm Extension Renegotiation Tools?
Wind farm extension renegotiations put you in an excellent position to renegotiate, as average market rents will have risen over time, so there’s no need to fear them.
It’s important to gather the right information and statistics beforehand. With expert advice and data about your site’s earning potential, you can approach renegotiations with a spring in your step. Need help getting the outcome you want? Get in touch with the team at Lumify Energy. We’ll be happy to give you the tools you need to succeed.
