A LOOK INTO THE FINANCIAL IMPACT THAT WIND FARMS COULD BRING TO FARMERS IN ARKANSAS.

Key Takeaways:
  • New technologies in wind energy have created opportunities to place turbines in Arkansas and the rest of the Southeastern U.S.
  • Creating a land lease agreement with a wind energy company allows farmers a steady income stream not based on weather conditions.
  • Adams Brown agriculture advisors can help farmers navigate new sources of income to make sure they remain solvent in their farming operations.

 

The first wind farm in Arkansas is positioned to begin in 2025 in Cross County, outside of Wynne. Located in the Arkansas Delta, the area covered is mostly flat with vast fields of row crops and minimum obstructions making it appealing to the industry in need of new wind energy projects. According to the Southeastern Wind Coalition, wind energy development is just getting started in the Southeast U.S. and is expected to grow rapidly thanks to the progress in technology with the introduction of tall wind turbines that now can reach up to 700 feet in height.

Crossover Wind has announced that in 2025, it will begin with 32 wind turbines that will generate roughly 135 megawatts of sustainable energy that could approximately power 50,000 homes per year. An additional two wind farms have been announced that are making their way to the Natural State with one located too in the Delta in Crittenden County and the other in the Ozarks in Carroll County.

With this industry being new to farmers and landowners, what is the financial impact of wind farms? Are there any windfalls that one should be aware of? Is participation a breeze or are there gusts that are unexpected?

Terms of a Wind Farm

Wind turbines only take up a small track on plots of land. This allows for the land to be used for livestock or row crops as long as the company is allowed access to the turbines for maintenance and routine upkeep. When a farmer or landowner is approached by a wind energy company, a lease agreement and terms are established. The lease provides supplemental income or cash flow for the rental of placing turbines on the farmer’s property. Thus, it creates a new “cash crop” the farmer is able to rely upon that is not based on uncertain weather conditions.

Payment Structure & Financial Impact

Wind energy companies typically provide this supplemental income in one of three ways based on how the lease agreement is structured.

  • Fixed Payments – A fixed price or amount that the wind energy company agrees to pay the farmer on an annual basis or over an established period of time.
  • Revenue Based Payments – A percentage of the gross revenue generated from the farmer’s wind farm is paid by the wind energy company.
  • Combination Payments – Depending on how the lease agreement was negotiated, a farmer could potentially receive a percentage of gross revenue and a fixed amount for payments.

According to the U.S. Office of Energy Efficiency & Renewable Energy, the average land lease pays $6,700 per megawatt annually. Based on the U.S. Geological Survey, wind turbines on average produce 2-3 megawatts a year. This would result, on average, in a farmer receiving up to $20,100 annually per turbine.

This reliable stream of revenue would allow a farmer to utilize the additional cashflow to invest in their own farm through the purchase of new equipment, acquisition of land and debt settlement, or they could utilize the cash for personal cash flow needs.

Effect on Farmland

The major drawback of allowing wind turbines on agricultural-used land is in the construction phase where the utilization of the land may be at a temporary disruption. While working through the contractual agreement for the use of the land, discussions should be made with the wind energy company on how the construction and operation could impact both the short-term and long-term agriculture operations.

A short-term disruption landowners should expect is the loss of acreage for ag-related production during the construction of the turbines. Wind turbines can take anywhere from six months to a year to complete depending on the size and scope of the wind farm. This could potentially be a whole crop season that a farmer is depending on for income. Many wind energy companies provide a settlement for crop damages related to the loss of agricultural production.

These payments are generally negotiated and listed in the land lease agreement. Based on the valuation method listed in the contract, the payments are provided in a lump-sum for each type of crop. It is recommended farmers or a third-party inspector record the conditions of the property before construction of the wind turbines. This could potentially help when filing crop damage claims with the wind energy company.

After completion of the wind turbines, the only long-term interference with the land is often additional gravel roads that allow an easy path to the turbines for maintenance and repairs.

Decommissioning

The lifetime of turbines on a wind energy project on average are between 25 – 40 years. However, repairs and upgrades can be made to lengthen the life of the project if the company and the landowner agree to it. For the first wind farm in Arkansas, Crossover Wind is only sustained for 30 years before decommissioning. This does allow for 30 years of lease payments to the landowners is an important note to remember. Once a project has been retired, the wind turbines are dismantled on-site, and the land is restored to its original state based on how it is written in the lease agreement.

Impression on Community

A selling point wind energy companies use to grab the attention of the local parties involved is the impression that a wind farm leaves on a community. Not everyone in a local town or community is going to agree with the proposal of a wind farm, however, it is hard to argue with the monetary gain provided to the surrounding local economy. The wind energy companies usually have written into the lease agreement that they will be covering the property tax related to the turbines and the infrastructure supporting the farm. This generates millions of dollars in property tax to the county over the lifetime of the wind farm. The county is then able to use this monetary gain and provide funding for schools, roads, hospitals and other local priorities. The injection of county revenue could potentially create an economic boom for the area all because of a wind farm using the local landscape for sustainable energy.

Questions?

Wind farms are the next wave of renewable energy sweeping through the Southeast U.S. As with anything when evaluating possibilities, the pros must outweigh the cons. The capability for a new steady stream of income will be sought after by farmers and other landowners throughout the Southeast.

At Adams Brown, we are not trying to sell you on wind farms. However, we are always looking at new ways for our farmers to earn additional income and keep their livelihoods grounded on the farm. When an opportunity for a wind farm blows your way, feel free to reach out to an Adams Brown farm CPA to learn how this could financially impact you.