Types of Wind Royalties
Like oil and gas royalties and mineral rights, wind royalties can be passed to the next generation or sold to a third party.
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Learn the Basics
Four Types of Wind Rights, Royalties & Payments
Landowners who host wind turbines or live near them may receive various types of wind energy compensation payments.
Wind Rights
Wind rights, similar to mineral rights, are a severable right to capture and develop wind energy on a tract of land. It is a real-property interest in wind resources and sometimes referred to as the “wind estate”. No state specifically recognizes wind rights, but many have passed anti-severance laws.
Wind Royalties
Wind royalties are paid to landowners who host wind turbines on their property. Royalties are usually paid semi-annually at a fixed price or a percentage of energy sold. Most wind royalties escalate over time, adjusting for inflation.
Wind Accommodation Agreements
Landowners and wind developers may be paid in exchange for granting rights (easement or lease) to place turbines, or related infrastructure on the property or, in some cases, not to develop near other wind projects.
Nuisance or Participation Payments
Landowners who live near turbines but don’t host them are sometimes paid for “participating” in the wind project or wind farm. These landowners are compensated for the inconvenience of living or working near wind turbines which might be noisy or create a shadow flicker.
A New Industry
Wind Royalties & Compensation
Unlike oil and gas mineral rights, wind power development is still relatively new, so there is not yet a robust body of law governing wind rights and royalties. As a result, each wind agreement, lease or easement must outline, in great detail, the terms of the contract between the landowner and the wind project developer. These agreements typically range from 20-40 pages and often contain terms that favor the developer rather than the landowner.
By signing the contract, the landowner agrees to a period of exploration, development, and finally, if the developer choose to host one or more wind turbines on the property, a production period with optional extensions. In exchange, the developer agrees to compensate the landowner in uartly, semi-annual, or annual payments (or a combination thereof).
These payment are often referred to as wind royalties. The landowner is sometimes guaranteed a minimum payment or percentage of the energy sold, whichever is greater. Many contracts have an escalating royalty that increases over the term of the contract.
Wind contracts often have the option to renew, but many landowners do not realize that most projects need to be depowered between 8 and 15 years. The wind turbine may be decommissioned, automatically ending the contract.
There are many unknowns and risks associated with owning wind royalties, and having a long contract with multiple renewal options is not a guarantee of future revenue.
Wind Estates vs. Royalties
The Wind Estate
Although many landowners have attempted to sever wind rights, it is unclear if the courts will recognize the wind estate as being separate from the surface. In many states, the legal implications of severing wind rights are still unknown.
Many hope the courts will eventually recognize the wind estate as similar to the mineral estate. Unfortunately, the trend does not appear promising.
No state currently recognizes the “wind estate”. In fact, many states have enacted specific anti-severance statutes. In these states, wind rights are inherently connected to the land and cannot be severed.
Anti-severance legislation benefits the developer, who will never have to deal with fractioned ownership (unlike the oil and gas industry). Simplified title, ownership, and easier payment process are in the developer’s best interest. Wind power organizations and developers have far deeper pockets and greater influence than even the largest ranchers.
The following states have anti-wind severance statutes:
- Colorado
- Kansas
- Oklahoma
- North Dakota
- South Dakota
- Nebraska
- Montana
- Wyoming
Looking for details about wind estate, severance, and royalty/agreement laws? Check out our state-by-state summary of wind energy anti-severance legislation.
Understanding Valuations
Selling Wind Royalties
Most wind royalties are unfractionated (they are still owned by the original landowner). However, wind royalties will be increasingly fractioned as landowners pass the royalties to the next generation or royalty owners choose to sell their royalties.
Wind royalties generally sell for a multiple of the annual revenue. In the past, fund managers were willing to overpay for income-producing wind energy assets, simply because they were “renewable” and therefore desirable. However, the market has since cooled, and multiples of 3-6 years are increasingly common.
While oil and gas checks decline over time, wind royalties often have an escalating royalty that increases over time (but may or may not keep up with inflation).
Looking for an offer on your wind royalties, nuisance payment, or other wind accommodation agreement? Contact us.
Valuation Factors
How Wind Royalties Are Valued
There are many factors that play into the value of wind royalties and other compensation. These include location, capacity, average wind speed, current royalty percentage, wind production, lease terms, risk profile, and even the operator of the wind farm or project.
Location
Wind farms are typcially situated in areas with consistently high wind speeds, ideal terrain, and close proximity to electric transmission lines.
Capacity
Newer wind turbines are typcially rated for a higher capacity and generate more wind power and revenue.
Wind Speed
Higher average wind speeds genrate more wind energy and therefore, more revenue.
Production
Higher producing wind turbines generate more wind power over the life of the wind farm.
Lease Terms
Favorable lease terms positively impact the market value of wind royalties.
Operator
Large, experienced wind farm operators are often more financially sound.
Next Steps
Request an Offer
Interested in selling your wind royalties? Request an offer. You have no obligation to sell, so it doesn’t hurt to look into your options.