Wind Farm Extension Renegotiation Tools To Use When Finalising Your Lease
|Topic: wind farm extension
|Read Time: 7 mins
| Landowner type:
Independent landowners | Institutional landowners
|Energy: Onshore wind
Is 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 lease is coming to an end, it’s time to think about renegotiating your wind farm extension lease agreement.
But if you’re feeling daunted by the prospect of renegotiations – don’t be!
Although you probably haven’t touched your lease for up to 30 years, you can still approach the WF extension lease renegotiation process with confidence.
And 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 remained the same throughout a project’s life or has drastically changed.
You’ll need to head into the process as a landowner with facts, figures, and a strategic approach.
To succeed at the renegotiation stage, you must be armed with current market rents and the net present value of the site.
But what about the other tools that you can use to shift terms in your favour?
Join us as we explore the tools you’ll need to turn your renegotiation process into a smashing success.
6 Winning Wind Farm Extension Renegotiation Tools
When your wind farm extension comes around, you’ll want to have all the right tools at your disposal. From knowledge of market rent to hiring a team of experts, being prepared is always a good idea.
In our experience with landowners, we’ve found that the following 6 tools will help you reach the most favourable outcome possible. 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 wind farm extension renegotiation tool that you should consider is being able to demonstrate current market rents. It’s not uncommon that site operators will only know about the rents paid within their own portfolios. So, landowners will need to have evidence that market rates are significantly different across the board if they want site operators to cough up the cash.
Assessing this information and bringing it to a site operator may take time, but it’s always worth the effort. We think 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 a landowner’s 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, we suggest doing the following:
Research the possibilities in the market
The first thing that you’ll want to do is 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 that they fit 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.
As you might have guessed, this puts you in a much stronger position when negotiating.
If you want to take the guesswork out of things, our Lumify SiteScan™ is bound to put your mind at ease.
We still remember helping farmer David Lindow with the comprehensive data he needed to receive a fair royalty rate in line with the current market. And he didn’t need to lift a finger during the process!
Learn more: If you want to learn more about the Lumify SiteScan™ (and how it can maximise the potential of your site!), check out our case study with David Lindow.
Document key information
A 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 that you find along the way.
This will support your rental decision and give you leverage during the renegotiation process.
This can include (but not be limited to):
- The amount of rent paid per year
- The amount of electricity generated per year
- The number of years since the site has been operational
- The age and location of each site
- How much still needs to be paid off for equipment
If you find relevant information that can show an increase in value for the site, you can use this to propose a suitable rent to tenants.
After all – knowledge is power.
2: Demonstrate the net present value of a site
When your wind farm extension renegotiation rolls around, you’ll want to calculate the net present value of a site. This is 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, landowners 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.
Landowners could take the following steps to do this:
- Obtain a breakdown of the electricity generated by the 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 stages 1 and 2 of this process.
- Forecast the future income and costs expected over the next 10 years alongside expected future energy prices and running costs.
3: Be well aware of lease end dates
It’s never a good idea to wait until the last minute to approach your lease renewal.
This is partly because a lease ending without a formal agreement can be detrimental for landlords. But it also puts you on the back foot when it comes to renegotiating your lease with minimal time to spare.
If you start ahead, you’ll be able to continually monitor market conditions and take advantage of changes that will benefit you. When you’re scrambling for information close to a deadline, you won’t come to the table with the strongest weapons in your arsenal.
In our experience, it’s always best to renegotiate early. This should leave 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.
In our opinion, it’s one of the most important renegotiation power tools to have in your arsenal! By having a step-by-step plan to follow when your lease is ending, you can avoid the pitfalls that can appear when landowners rush.
It’s a given that you should familiarise yourself with your current lease agreement. But you should also talk at length with your operator about their plans to put you on the same page.
5: Consider your financial terms carefully
At number 5, we have one of the most important wind farm extension renegotiation tools there is.
And that’s considering your financial terms carefully!
Although you can research current market rates and electricity information from your site, there are still several variables to consider.
- 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)
As many of these steps will be tricky to figure out while managing your day-to-day tasks, it’s worth hiring a team of experts 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.
So, Will You Use These Wind Farm Extension Renegotiation Tools?
Although renegotiations can seem daunting, there’s no need to fear them! Wind farm extension renegotiations put landowners in an excellent position to renegotiate as average market rents will have risen over time.
It’s important to gather the right information and statistics before heading into renegotiations.
But with expert advice and data about your site’s earning potential, you can approach renegotiations with a spring in your step. Need a helping hand getting the outcome you want? Get in touch with the team at Lumify Energy and we’ll be happy to give you the tools you need to succeed.