REVELATIONS, earlier this week, of a major wind farm development proposed for the Dundas Tableland red gum country (Spectator, 10 April 2024) suggest that it is timely to provide some background to the pros and cons of having a wind farm built on a grazing property.

First we shall look at the rewards and then at the risks, the objective being to give an overall picture of what is involved but not an exhaustive list.

The Rewards

TO the landowner, the obvious rewards are the rental streams.

Wind farm developers do not, as a rule, publish rental rates, preferring to use non-disclosure agreements to avoid collective bargaining by farmers.

However, the bush telegraph is alive and well and it will come as a surprise to few readers to hear of figures of $40,000 to $50,000 per wind-tower site per annum with annual increases to the Consumer Price Index (CPI) or a fixed percentage.

The lease terms are usually 25 years, sometimes with an option for a further term at the discretion of the lessee (tenant).

Leases always (as far as is known) provide for the wind farm operator to remove, at lease end, above ground-ground equipment, this being generator, tower and turbines.

The underground cabling, gravel roading to the towers and the concrete footings are not included as items for removal by the tenant.

Returning to the rental stream; one can estimate a present (capital) value to the landowner at the inception of the lease based on a range of discount rates or yields.

The orange table Estimates of Present Value (PV) of a wind tower lease to landlord gives an indication of the present value of one wind tower at lease commencement based on a range of discount rates. 

It is intended as a guide to an order of magnitude and is not suitable for decision making purposes.

Quite clearly, there are significant financial benefits provided by the cash flows from leasing to a wind farm developer, a welcome buffer against the vagaries of costs, prices and rainfall.

Shire Rates and State Land Tax

SOME welcome news for wind farm landowners and clarification for Shire Councils came late last year when the Valuation of Land Act (VLA) was amended so that wind farm assets were to be assessed as a separate rateable entity. 

Previously, the VLA was interpreted as designating wind farm assets as chattels (i.e. not part of the freehold) because they were owned by the tenant and, consequently, there was confusion as to whether rates might be payable on wind farms.

The effect of the amendment is that the wind farm is a separate rateable entity and will have its own valuation, struck annually by the Valuer General.

The valuation will include a Site Value on which State Land Tax (SLT) will be assessed since a wind farm does not constitute SLT-exempt primary production.

This will result in rates collectable by the Shire and State Land Tax accruing to the State Government.

Together these are informally estimated in the blue table.

Landowners will need to have their solicitors ensure that leases place the onus for payment of these rates and taxes on the wind farm equipment owner-operator.

In summary then, one can say that leasing to a wind farm has very significant cash flow advantages together with added certainty arising from the amendments to the Valuation of land Act.

Now to the risks.

The Risks

A MAXIM, often cited, is “expect the unexpected” which, while prudent, is highly open-ended and can result in needless handwringing.

For example, one can speculate, as a result of climate change, turbine-mutilating hurricanes becoming a bi-monthly event across southern Australia.

However, there is no discoverable literature signifying this.

We can, however, focus on one type of risk which is identifiable as a possibility and which has occurred often before.

This is a change in technology.

Technology shifts have happened before, indeed throughout history, an example being the impact of electricity on the candle industry.

Candles once the primary source of artificial lighting are used partly for blackouts but more often for indoor fragrance or outdoor insect repellence.

Another is the effect of jet airliners on long distance ocean-going passenger travel.

Nowadays, the jets transport people and the ocean-going ships provide pleasure cruises.

However, for the purposes of our discussion, the most pertinent example is probably canals, specifically British canals.

In Britain, in the early stages of the industrial revolution canals were rapidly developed to carry the inputs (such as coal and iron) and the outputs (manufactured goods) to and from the burgeoning factories.

There was a boom in canal building and a plethora of investments offered.  Historians talk of a golden age of canals running from the 1770s to the 1830s and the investment bonanza as “canal mania”.

Canals were the mode of transport which underpinned the early stages of the industrial revolution.

The demise of the canals was slow but definite and it came about because of one thing - railways.

Trains were far faster than canal barges (which were horse drawn) and they could carry passengers as well as freight.

They rapidly took business away from the canals which did, however, continue to carry heavy, lower value cargoes such as pig-iron, coal and wheat. 

Indeed, there were small amounts of low value cargo on British canals until 1963, when an abnormal winter froze the canals and they were abandoned only to be adopted for leisure boating.

The technological risk to wind farms which is of interest to us here is nuclear power in small modular reactors.

The arguments for and against nuclear have been well-canvassed elsewhere and it is not the purpose of this article to argue for or against either wind or nuclear power. 

It is merely to identify a risk which could become an actuality.

What we are interested in is; what happens if wind farms go the same way as candles and canals?

To a landowner who has leased a site for a wind tower, the worst-case risk is that the tenant becomes insolvent which might happen if nuclear energy was accepted and had a competitive advantage.

In an insolvency situation, lessee guarantees to remove the wind tower are of no value because the tenant has been wound up.

In such a scenario, the landowner would have a wind tower structure which would be of no economic value with a turbine and generator of significant bulk and weight and consequent danger.

One may ask; “What will it cost to demolish and remove a wind tower?”

Demolition and debris removal are often approximated as being a percentage of construction costs.

The cost of erecting a wind tower as part of a wind farm has been cited at around $10 million per five-megawatt tower.

This would suggest a demolition cost in excess of $700,000 per tower based on demolition & debris removal being around 10 per cent of construction cost but with some clawback for recyclable material.

This however, is an order of magnitude estimate only being intended to highlight the, probably remote, risk.

It should also be pointed out that the remaining gravel roading and concrete footings might well impact negatively on farm value.

Thus we can discern that, with the innovation of small modular reactors, there is a risk, albeit it slight, but a risk nonetheless.

It has been said that a successful innovation proposal goes through stages.

For a long time it is dismissed as absurd.

For a very short time it is considered a feint possibility.

Finally it is considered obvious.

Until recently, nuclear was dismissed out of hand.

Perhaps it still is…