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Host Landowner Negotiations

1.1. Observations

Background

Wind turbines and solar arrays are typically located on cleared primary production land owned by a landowner, often referred to as the ‘host’ landowner. The land’s existing use is typically broad-acre agricultural production (for example, livestock or cropping). In general, a relatively small portion of the productive land is utilised for a wind farm’s operation, such as turbine siting, access roads and other related assets such as transmission line easements, electrical substations, transformers and meteorological masts. The landowner usually continues to operate the agricultural production activities on the remaining land. By contrast, a solar array consumes most of the land that it resides on, with limited opportunities for co-located farming activities.

There is typically significant disruption during the construction phase of these renewable energy assets and ongoing access to the assets will be required by the operator for normal operations and maintenance.

Landowner Payments

Host landowners for wind farms are typically paid a fixed amount per turbine per year under a long-term agreement that mirrors the life of the wind farm – a term of 25 years with renewal options is common. The fee paid to the landowner may be a flat annual fee per turbine, regardless of size or capacity, or a fee based on the generating capacity of the turbine. The latter arrangement reflects the reality that modern day turbines have much greater capacity (in the order of 4 MW - 6 MW) compared with turbines available previously and, therefore, can result in less turbines being hosted by the landowner than originally envisaged with smaller capacity turbines. Host landowners for solar farms are generally compensated on a fixed amount per hectare leased to proponent.

Fee pricing can become dated, especially if a landowner has entered into a fixed annual fee agreement. At issue, and one that has emerged in more recent times, are wind farm agreements that may have been entered into a number of years ago with a fixed annual fee per turbine, where the turbine capacity may have been in the order of 1.5 MW to 2 MW per turbine. However, given the rapid advancement in wind turbine technology, proponents have updated their designs to take advantage of the new, larger scale and more efficient turbines – changing their wind turbine layout to deploy the contemporary technology and requiring fewer turbines to achieve the same energy output.

Many existing agreements did not contemplate the significant change in turbine capacity that has now occurred. As a result, the agreement fee per turbine payable to the landowner (based on the smaller capacity turbine) may not reflect the fee that may be more appropriate for say the larger 4 MW to 6 MW capacity turbine. Further, the landowner’s payment may well be less than expected due to the reduction in the number of turbines now required. Landowners may wish to check their existing agreements in this regard and also ensure any new agreements have provision to adjust the fees in the event of a turbine capacity increase (and reduction in number of turbines) as well as the ability to escalate fees annually for changes in indicators such as CPI.

There can also be a variety of arrangements regarding when the payment of fees actually commence and cease. While this is a matter for negotiation between the developer and the landowner, it would appear that a fair and reasonable approach would be for payments to commence no later than the start of project construction and cease no earlier that the completion of decommissioning and restoration at the landowner’s property. Fees may also be payable during the development phase in consideration for the option granted to the proponent by the landowner.

Other fee arrangements/agreements may also be required for electrical substations, batteries, transmission line easements, road access, transportation of blades and towers across property boundaries, location of project offices and the like. Landowners hosting these ancillary assets may or may not be wind turbine or solar array hosts.  

Emerging issues include ‘blade trespass’, where a turbine blade may need to traverse a landowner’s property boundary when being transported around a bend in the road, and ‘sway easements’, where a powerline may sway over a landowner’s property boundary. The recent increase in blade lengths has increased the possibility of ‘trespass’ occurring. Developers and their contractors need to be cognisant of these types of issues and ensure they have appropriate agreements in place with landowners prior to submitting permit application plans such as the transport management plan or transmission route plan.

Development Process

Potential host landowners are typically approached by a developer very early in the development phase of a potential project in order to obtain the landowner’s agreement to host turbines or solar arrays should the project proceed. Landowners will typically enter into an initial agreement (often referred to as a ‘License Agreement’) that documents their willingness to host the assets and the commercial arrangements that may be agreed to in the event that the development proceeds to the permit application stage. Generally, these initial licence agreements provide the developer with exclusive rights over the landowner’s property for a defined or undefined period of time.

There is a wide spectrum of developers active in the industry, with a variety of skills, resources, experience and business models. Many developers will progress the project to a stage where it is eligible to secure (or has secured) a planning permit, and then sell the project to another entity that will take the project forward through the construction and operation stages. Currently, developers are not licensed to prospect wind or solar farm projects, nor do they require approval to prospect a location for a potential project site.

At the initial stage of the development process, it is not uncommon for a developer to propose more turbines or solar arrays than will be finally approved or installed. As a result, the developer often enters into preliminary agreements with landowners who may ultimately ‘miss out’ on hosting assets or be offered to host a reduced number of assets. Further, even when the final number of wind turbines or solar arrays is confirmed, the planned location of these assets may be further revised, which can also result in landowners hosting less assets, potentially earning less fees than original expectations.

There are many reasons why a proposed project may reduce the number of turbines or solar arrays during the development phase. These may include increases in turbine or solar panel capacity, transmission constraints, environmental and planning considerations and requirements, financial constraints, community or neighbour concerns along with changes to policy, legislation or planning guidelines.

These various scenarios, observed in the Australian industry to date, can create a ‘winners and losers’ situation for landowners that may have had expectations of hosting assets. For instance, a landowner expecting to host say ten wind turbines (and expecting to receive the payments for hosting ten turbines) may become aggrieved if the final approved wind farm has significantly reduced or eliminated the number of turbines to be hosted by the landowner, thereby materially reducing or eliminating the potential income stream to that landowner.

The landowner may not only perceive that they have ‘missed out’ on a significant expected income stream, but may also raise concerns about the potential impacts of turbines located on neighbouring properties, including changes in amenity, audible noise, construction disruption, loss of property value and other effects of the wind or solar farm. The fact that the landowner’s neighbours are hosting turbines or arrays and receiving payments can further aggravate the situation for the landowner that missed out.

This situation can also be exacerbated by developers conducting confidential, individual discussions and negotiations with specific landowners, creating a level of distrust amongst neighbouring landowners and the developer from the outset.

The consequences of these scenarios can be severe, both in terms of fracturing support for the project within the community as well as dividing the community in economic and social terms. Developers need to be mindful of the consequences which may arise from their conduct in landowner negotiations and the magnitude of impact on landowners with regard to changes to proposed solar array areas or the number of turbines and turbine layouts.

There is also a high risk that project prospectors, who may not have fully considered the implications of these scenarios, inadvertently conduct themselves in a manner that can result in long-term resentment to large-scale renewable developments within local and wider communities where the project is proposed. While these actions may lead to difficulties in relation to the success of the specific project, they also have the potential impact of creating difficulties for other project developers who may be undertaking development of neighbouring projects in the region. At times, these situations have brought and still have the potential to bring the large-scale renewable industry into disrepute.

The Commissioner has observed some successful methods by developers of working with landowners that have ultimately missed out on some or all of the expected assets to host. Such methods recognise the landowner’s long-term engagement and commitment during the project’s development, including a level of payment that may be based on a range of parameters, including the number and type of assets that the landowner had been originally expecting to host.

Host Agreements

A host landowner agreement is essentially a commercial lease. Significant time and money can be spent by developers in creating draft landowner agreements, which in turn should be reviewed by the landowner and their solicitor before negotiating and executing. Both industry and landowners may benefit from a standard agreement document being produced and available for use that is fair and reasonable, complete and consistent with the relevant laws – similar to in concept, as an example, the Law Institute of Victoria’s Lease of Real Estate (Commercial).

Some landowner agreements observed could be clearer in a number of aspects. Agreements should provide clarity on a wide range of day to day matters, including which party is responsible for paying rates, land taxes, emergency services levies and the like. The landowner agreement also needs to be clear on termination provisions and the responsibilities regarding decommissioning of the wind farm.

Landowner agreements are not limited to hosting wind turbines or solar arrays – they may also be required to allow easements for high voltage transmission corridors, substations, construction facilities, meteorological masts as well as construction and operational access roads for the wind farm. Careful consideration of the approach and fairness to negotiating these additional agreements should also be required of the developer. Landowners should also ensure they seek suitably qualified legal and financial advice before entering into any agreement.

There may also be innovative opportunities for landowners and other community members to have an ownership stake in the project, which could be in the form of a community-owned wind farm through to equity or debt participation in the commercial ownership structure. It is understood that there are some examples of these approaches in Australia as well as in other overseas jurisdictions such as Europe.

Construction

The construction period can be a time of significant disruption for the landowner, with potential long-term effects. Typical issues can range from management of gates – gates being left open during construction activities can quickly lead to unplanned migration of livestock, often with challenging consequences – through to the impact of new roads and trenches being built throughout the landowner’s property.

Firstly, construction itself can be a messy activity, particularly for wind farms. There is significant amount of civil works, components waiting to be assembled, equipment moving around and a large number of construction staff requiring temporary office and toilet facilities. Construction typically consumes a material portion of the land area – a much greater area than when the project is completed. It is advisable to plan for removing any livestock or ceasing farming activities during the construction phase.

Landowners may also be well advised to visit an actual wind or solar farm site under construction to experience first-hand the extent of the works and impacts on the land. 

A common frustration for landowners can be last minute changes to the location and routing of internal roads and underground cabling. Project contractors and sub-contractors may inadvertently select a different route to the one that had been agreed to with the landowner, causing an unexpected loss of pasture or cropping capacity. Gates being left open by construction workers can also be problematic if livestock are grazing on the land.

Internal road construction in hilly and ridge terrain may lead to large roadway cuttings and embankments that can make it difficult or impossible to move livestock around the remaining paddock areas.

Best practice gate management is to design the road access and fencing in such a way to minimise or eliminate the need for gates. Project roads should also be designed to minimise the need for ‘cut and fill’ and vegetation removal, using the natural landscape wherever possible.

A construction project typically has multiple contractors and sub-contractors. It is not always clear who the landowner should contact to resolve issues as they inevitably arise during construction. Developers should ensure there are clearly defined points of contact for landowners to raise and resolve issues during construction, as well as the ability to escalate concerns that remain unresolved. Regular meetings between the developer and the landowner during construction can also provide a forum to discuss and resolve the inevitable changes and issues that may arise.

Outgoings

The addition of a wind farm to a rural property is likely to incur increases in outgoings such as Council Rates, Land Taxes, Insurances and other levies. For instance, a landowner may not be aware that primary production land may be re-assessed as industrial use land once turbines or panels are installed, may attract increased valuation rates, levies and may no longer be exempt from land tax. As discussed earlier, landowner agreements should be precise and clear on which party is responsible for the cost and payment of outgoings and any increase in the outgoings due to the wind farm. Ultimately, the landowner is usually ultimately liable for the payment of outgoings in the event the wind farm operator defaults.

Approaches to calculate and levy items such as council rates, land taxes and other levies appears to be ad-hoc across various state jurisdictions. The lack of a consistent approach may result in a number of consequences, including revenue leakage through to surprises in unforeseen levy charges. Some actions to clarify these matters are being taken, such as the NSW Valuer-General policy Valuation of Land Used as a Wind Farm (New South Wales Government, June 2019) but there may well be opportunities for tighter and consistent processes to correctly calculate, levy and collect these outgoing payments as a result of the deployment of wind turbines, solar arrays and other associated assets on the land.

Decommissioning

At the end of the project’s operating life, the clear expectation of all stakeholders is that the wind or solar farm will be decommissioned and all turbines, arrays and other infrastructure will be removed from the property, with the property returned to its original condition – to the extent that can be done.

These responsibilities to ‘make good’ should rest with the project owner. However, in the event of default or breach of the agreement by the project owner, the liability for decommissioning ultimately may rest with the landowner. Further, the landowner typically does not have title or ownership of the project’s assets and, as a result, may be unable to recover the costs of any decommissioning activities by selling the assets remaining on the property. Project operators/owners may also change many times during the life of the project.

From a landowner’s perspective, it is imperative that any commercial agreement to host assets and the related infrastructure clearly sets out the responsibilities for decommissioning and restoring the site and provides for security of the funding to enable decommissioning.

A landowner may therefore also wish to seek ongoing evidence that the project owner has the capacity to fund the decommissioning activity and that such funds are properly set aside securely for that purpose. Examples that could be considered include bank guarantees, a sinking fund, a trust fund or a deposit held by the landowner. The Australian Government’s recent Offshore Clean Energy Infrastructure Regulatory Framework Discussion Paper proposes that developers lodge a decommissioning for infrastructure as a licence requirement.

While there are no documented examples of costs to decommission a contemporary wind turbine or farm in Australia, some published decommissioning plans have calculated costs that are close to $400,000 per turbine. Many of these decommissioning plans are reliant on balancing decommissioning costs by recycling the recovered materials – however, there appears to be a lack of sufficient evidence to confirm this approach. To put these costs into perspective, the fees earned for hosting the turbine for 25 years could be in the range of $250,000 - $625,000 (depending, typically, on the turbine capacity and when the wind farm commenced operations). It is therefore possible that the costs to decommission a turbine could be equal to greater than the total income generated for the landowner over the 25 year lease period.

We are about to enter a period where, for some of the initial wind farm projects around Australia, decommissioning activities will commence in the next few years. There will likely be increased concerns about this topic, particularly from host landowners.

1.2. Recommendations

1.2.1. The developer should ensure that landowner expectations are properly managed from the outset of negotiations and that potential host landowners are made fully aware of the risks of potential reduction in turbines or solar arrays and relocation of these assets during the long development process life-cycle. Agreements that enable the developer to have the exclusive rights to the landowner’s property should have fair and reasonable provisions for the landowner to terminate the agreement if the project has not met expected milestones after a reasonable period of time. Prospective milestones set out in the agreement should have clearly stated expected dates for those events – such as submission of permit application, financial close, commencement of construction works and expiry of planning permit.

1.2.2. Where practical, developers should consider discussing the proposed project and negotiating with all potential host landowners together as a group in an inclusive and holistic manner, rather than individual discussions with landowners. A standard template agreement with consistent commercial terms and conditions should be considered by developers and supported by industry and the relevant legal association in each state.

1.2.3. Further to Recommendation 1.2.2, developers should consider offering some level of payment to all engaged potential host landowners if the project proceeds, regardless of final allocation of assets on individual properties.

1.2.4. Host landowner agreements should be fair, reasonable and written in plain English. The landowner should have access to and obtain appropriately skilled legal and financial advice before entering into any agreement. The New South Wales Government’s Wind Energy Guideline for State Significant Wind Energy Development (New South Wales Department of Planning, December 2016) provides some discussion on this topic, particularly within Attachment B of the publication. NSW Farmers’ Federation have also produced a Renewable Energy Landholder Guide (GHD Pty Ltd, updated in 2019) covering a range of relevant topics related to host landowner agreements. Specific areas of agreements requiring clarity in landowner agreements include:

  • fees payable to the landowner during the project development stage (pre-permit), financial close stage (post-permit), construction, operational and decommissioning stages
  • timing of payment of fees and due dates for payments
  • escalation of fees during the agreement, such as a fixed annual increase or CPI increase, and method of calculation
  • considerations if the project is cancelled or materially delayed
  • considerations if the project scope materially changes, particularly if the changes result in negative impacts for the landowner
  • variations to fees in the event of changes to turbine layout, turbine specifications, turbine capacity and number of turbines or solar arrays to be hosted
  • agreed internal road and other infrastructure locations (cabling, construction offices, substations, transmission lines etc.)
  • process for making changes to location and routing of project infrastructure to the landowner’s property (e.g. access roads, cabling) and responsibilities for maintenance of such infrastructure
  • responsibility for costs and payment of additional council rates levied on the landowner as a result of the project
  • responsibility for costs and payment of additional land taxes levied on the landowner as a result of the project
  • responsibility for costs and payment of additional emergency services or other levies as a result of the project
  • required insurances to be taken out by the project operator in respect of the landowner
  • required insurances to be taken out by the landowner in respect of the project
  • additional insurances that may be required to be taken out by neighbours to the project (such as liability insurance)
  • responsibility for the costs and payment of the various insurances
  • landowner’s responsibilities in regard to renting out the property and/or residence(s) to a third-party tenant
  • sale or transfer of the land by the landowner
  • any restrictions on further development on the property
  • provisions in the event of subdivision of the property
  • term of the agreement, options for renewal of the agreements and termination provisions
  • assurance provisions to protect the landowner in the event the project defaults (such as a deposit or bank guarantee)
  • decommissioning provisions, responsibilities of the parties and arrangements to ensure funding is assured and protected
  • remedies available to the landowner in the event of default by the developer, and
  • key contacts at the developer for the raising and escalation of issues and potential breaches of agreement.

The above items could be set out in a standard template of a commercial lease agreement that is managed and maintained by an appropriate legal, industry or government body. Finally, landowners should be provided with an opportunity to visit a relevant project that is under construction to experience first-hand what is involved.

1.2.5. Councils and state jurisdictions should examine and audit current processes in place for the re-rating of properties that host wind and solar projects as well as related infrastructure and clarify how those properties are valued for the purpose of calculating land taxes and council rates. A similar activity should be undertaken for the calculation of applicable emergency services and other levies. The process and calculations should be transparent to relevant stakeholders and be subject to audit and be auditable.

1.2.6. Other landowner agreements (such as agreements for transmission line easements or road access) should also be negotiated and finalised with the landowners in a fair and reasonable manner, with appropriate consultations engaging affected landowners and neighbours in determining the final approach and routes to be taken.

1.2.7. Developers may wish to consider other forms of engagement with landowners (as well as neighbours and community members) that may allow for equity and/or debt participation in the ownership of the project.

1.2.8. The project’s construction plan, transportation plan and overall project design should be developed in close consultation with the landowners and designed so to respect the landowner’s need to be able to continue primary production operations during and following construction where applicable. Particular attention should be given to paddock/gate management and the impact of access roads to ongoing farming activities. Key contacts at the developer and/or its contractors should be provided to landowners to allow landowners to raise and escalate issues that arise during construction. Developers should also meet regularly with landowners during construction to discuss and resolve issues as well as keep landowners informed of the project’s status.

1.2.9. To ensure that professional conduct and standards are consistently adhered to by project prospectors and developers, state governments should develop mechanisms to promote and motivate best practice behaviour by prospectors – both in terms of preferred site selection for prospecting and the engagement with landowners and community. Some examples include the NSW Government’s ‘Renewable Energy Zone’ (REZ) designations, the Victorian Government’s ‘VRET’ program, ACT’s ‘Reverse Auction’ program and Queensland’s ‘RE400’ program. A further approach would be the accreditation of developers (or adherence to an appropriate code of conduct) this is overseen by an appropriate industry or regulatory body.

Further information