An economic analysis of wind energy leases on agricultural lands

In the U.S., wind generated electric power over the past decade has increased significantly. An area of the country found to be ideal for wind energy production is America’s “corn belt”, with some now calling this region the “wind belt” due to its recent surge in wind energy production. In fact, five out of the top ten wind energy producing states are located in this region. This study will focus on one “wind belt” state in particular: Illinois. Currently, Illinois is fifth in the U.S. in terms of wind generated electric power, providing six percent of all in-state electricity production. This amount can be expected to rise due in part to the state’s “Renewable Portfolio Standard” (RPS) that was passed into law and requires that 25% of electricity generated in the state must come from a renewable resource by 2025. In addition, the RPS states that, at a minimum, 75% of the renewable requirement must come from wind generated electricity.

The primary objective of this study is to provide an economic analysis of scenario alternatives regarding wind energy leases on agricultural lands. Payment arrangements to landowners willing to allow development of wind turbines on their property can be designed in multiple ways, including fixed payments, revenue based payments, or a combination of the two. On average in Illinois, a fixed payment for a single wind turbine tower ranges from $6,000 to $8,000 per year for approximately one acre per turbine. Comparing this income estimate against current and expected future crop production profitability, the decision of a landowner to allow development of wind turbines on their fields appears to be a simple and obvious choice. However additional costs can arise over the span of the leasing agreement, with some agreements lasting up to 30 years. Examples of costs potentially borne by landowners associated with wind turbine development include: maintenance of on-property turbine access roads, decommissioning of turbines when the operable life has expired, increases in property taxes and insurance costs, and damage to property during the construction phase. In addition, potential land-use alternatives that will no longer be permissible under contract terms will need to be considered. The results of this study will be used to provide landowners a comprehensive set of scenario alternatives to aid in their decision-making process. It is critical for these individuals to have a complete understanding of the long-term commitment they are about to undertake.