Negotiating Wind Park Easements and Analyzing Comparable Sales presented by Justin Bierschwale Bierschwale Appraisals PO Box College Street Junction, TX Ph (325) Terry Argotsinger Stalcup Ag Service, Inc. P O Box Flindt Drive Storm Lake, IA

Take a look from their perspective first

Wind Project Development Process Site Selection Land Agreements Wind Assessments Environmental Review Economic Modeling Interconnection Studies Permitting Sales Agreements Financing Turbine Procurement Construction Contracting Operations and Maintenance

Locating Wind Parks Power Grid Wind Velocity State and Federal Mandates (cap and trade) Tax incentives Power demand Will of the people

Mutual desire to make it compatible for everyone

Cost of Construction 1.5 MWh turbine Blades $300,000 Generator $1,250,000 Transportation $225,000 Tower $330,000 Materials $400,000 Labor $400,000 Engineering, Dev., etc $80,000 $3,000,000 / 1.5 Mwh = $2,000/Kwh RCN Deprec., O&M, Land rent, RE Tax – $60,000 Debt Service ?

Income Stream Electricity - $35 to $100 per Mwh at the hub Carbon Credits - $5 to $25 per mmt PTC/ITC/Direct payments - $.021 per Kwh Depreciation – 5 year equipment

Actual Production (1.5 MW Turbine) 4,000,000 Kwh x $.055/Kwh = $220,000 4,000,000 Kwh x $.021/Kwh PTC = $84, Mwh x 2,000 mmt CO2/Mwh x $15/mmt = $45,000 SO2, NOx – EPA clearing house for pollution credits (Meets Electricity needs for 300 people/year)

The Queue Federal Energy Regulatory Commission - FERC Independent Transmission System Operators - ISO $200,000 to $300,000 for permits Application Feasibility Study System Impact Study Facilities Study 459 to 884 days

Method of Negotiation Get legal advice Individually As a group Trustee, LLC – Combine wind rights into one package if rights can be separated under state code Option, Lease, Easement Privacy clause – Agreement and Memorandum

Key Terms of Agreement 3 phases Development – Construction - Operations Rates Site selection Insurance Re-powering Decommissioning Most Favored Nation

Development Phase 3 to 5 years State mandates with limits – 7 years $3 to $40 per acre per year

Construction Phase Usually less than one year One time payment Crop Damages Compaction Access Laydown areas Crane paths

Operations Phase 30 to 90 years Fixed Payments - $2,500 - $6,000 per MW CPI-U minimum 2% Royalty – individual tower 3,4,5 or 6% Royalty – prorated Fixed plus royalty Per acre plus royalty – 40/60 Renewable energy credits Carbon credits Roads, cables, buildings, substation

Site Selection Proposed plat Final plat Landowner approval The larger the turbine the fewer per farm 1.1 fall down distance – state code ? Setbacks from roads, dwellings

Insurance State code minimums $2,000,000 to $10,000,000 Adjust to inflation

Re-Powering okay but renegotiate

Decommissioning 5 feet 400 cu yds Performance bond for 1.5 x cost of removal 180 days

Most Favored Nation Same terms for all agreements Private negotiation - addendum

ELECTRIC TRANSMISSION SYSTEM OF TEXAS

FIRST WIND DEVELOPMENT

CONTINUED DEVELOPMENT

BOTTLENECK

DEVELOPERS AREN’T STUPID CURRENT DEVELOPMENT

DEVELOPERS AREN’T STUPID TIRED OF WAITING FOR EXPANSION FP&L PRIVATELY BUILT TRANSMISSION LINE

WHAT THE TRANSMISSION COMPANIES ARE SAYING $4.93 BILLION IN EXPANSION PROJECTS 2400 MILES OF NEW TRANSMISSION POTENTIAL FOR 18.5 GIGAWATTS IN NEW WIND POWER PROJECTS AEP & DUKE ENERGY – 240 MILES OF 765 KV TRANSMISSION LINES, EST. $1 BILLION COMING ONLINE WITHIN 8 YEARS

ONSITE DATA Anemometers Research Facilities Terrain Neighborhood Existing Turbines Data, Data, Data

Regulations Siting Visual & Noise Wildlife Impact Development Stages County Zoning? Safety? Synchronization with Power Grid Property Tax

Who All Gets Involved Wind Developer State Government Local Government Federal Agencies Community Groups & Activists Environmental Organizations & Activists General Public

BACK TO BASICS--6 FUNCTIONS OF $ Future Worth of $ Future Worth of $1.00 Per Period 3. Sinking Fund Factor 4. Present Worth of $ Present Worth of $1.00 Per Period 6. Annuity Worth of $1.00 TODAY

INTERNAL RATE OF RETURN RATE THAT SETS THE VALUE OF FUTURE CASH FLOWS EQUAL TO THE CURRENT VALUE 10.4% IRR???

SALE DETAILS 640 Acres Sale Price $1,581,257 Land Contributory Value: $2,000/Acre Residual Wind Lease Contribution: $301,257 Number of Turbines: 5 Lease Period at time of sale: Development

FINDING THE PIECES

CONSTRUCT THE TIMELINE

THINGS TO WATCH FOR

RENTS

Possible Expenses to Consider?

CALCULATE THE IRR IRR = 17.36%

SUBJECT DETAILS 320 ACRES ROYALTY PAYMENTS – SAME AS SALE TERMS – SAME AS SALE NUMBER OF TURBINES – 2 STAGE ON DATE OF APPRAISAL –DEVELOPMENT

CONSTRUCT THE TIMELINE

APPLY IT 17% IRR NPV = $131, ACRES X $2,500/ACRE = $800,000 + CV OF WIND LEASE: $131,000 TOTAL VALUE = $931,000

What Ifs: Justin’s Fuzzy Logic What if the Subject already had turbines producing and had 5 years of payment history? What if the Subject sat right next to an expanding wind farm but did not yet have a lease in place?

Things to Consider Make certain you have measured value as it contributes to the whole package, i.e. avoid flat out summation. –Extract Rates as they relate to contributory value, not as they stand separate and apart from the land. Extract and Apply in the exact same way. –If you include bonus payments in extraction, include them in application, etc. Step Away from the ledge at the end of the day and think through your conclusions. Are they logical?

QUESTIONS