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Texas
Agriculture Archive
October 3, 2003
A Windfall For Agriculture?
Two-part series examines the pros and cons of wind farming...
By Lana Robinson
Field Editor
Second of Series
Wind has long been a nuisance to farmers, often damaging foliage and sapping the moisture from crops, as well as sandblasting equipment and interfering with chemical spraying. But now, some farmers and ranchers consider wind an asset—a marketable commodity to energy companies expanding wind projects in areas of Texas, primarily out west. The newest technology transforms cantankerous West Texas gales into electricity. Farmers and ranchers have always been risk takers. They have suffered through droughts and collapses of prices for their products. Those going into the wind business are approaching it with the same sense of sobriety.
Riley Miller, for example, owns 48 sections of land near Justiceburg, a droughty ranching area where he can expect a hay crop maybe one year out of 10.
"We've had several years back to back with no rain," says Miller. "Cow prices are good now, but ranching here is tough. It's exciting to have something that might bring in some regular income. I think it's a great idea, to harness the wind, but I'm not counting my chickens before they hatch."
Green Mountain Energy Wind Farm at Brazos, a planned 160-megawatt project in Scurry and Borden Counties recently purchased by Shell WindEnergy (a part of Shell Co.) and Padoma Wind Power, will include a portion of Miller's land. He expects he will have about 30 wind turbines on his property.
"I can look out my east window, towards Fluvanna, and see 15 or 20 towers. I understand they'll be all around the edge of the Caprock—some behind each other. There's plenty of goings on. Looks like a bunch of ants. That's really helped provide jobs locally. They seem to think they'll be done by Christmas," he says.
That suits Miller just fine. The sooner the project is online, the quicker he and other landowners with leases will begin drawing a percentage of the megawatts generated—an arrangement much like an override or royalty tied to oil production.
"My granddaddy came here in 1900. You have few good years, and you stay and stay. We don't get much rain, but we've got plenty of wind," says Miller. "This will be a great gift if all goes well. I look at it like it's just that much more than we would have had otherwise. And maybe it's something that will benefit my kids."
One of the nation's largest wind energy projects— a 265-turbine, 400-megawatt wind farm—is under construction south of Sweetwater. The first phase of the Nolan County project, slated for completion by year's end, will supply enough energy to light up 11,000 Texas households. TXU Energy, Texas' largest purchaser of wind power, will purchase energy from the farm.
Houston-based DKR Development is developing the first phase, Sweetwater 1, which will include 25 GE Wind Energy turbines. Nineteen of the turbines will occupy one part of W. A. Oatman's ranch near Maryneal and six will stand on the bordering ranch north of his property. The project, about 15 miles south of Sweetwater, will expand over 31,000 acres by December 2005. The total cost of the project is estimated to reach up to $500 million.
"It's the cleanest energy available in this day and time, and it's bound to help with the energy crisis and pollution. But we still don't know what the results are going to be for us. The benefits are speculative," Oatman suggests. "We got out of the cow business, and rested our ranch for two years. Then this came along."
Trent Mesa Wind Farm turbines are visible from ground level from Oatman's ranch.
"As the crow flies, it's probably five to seven miles away," he says.
The Trent Mesa Wind Project, a 150-megawatt wind power plant located between Abilene and Sweetwater in West Texas, uses 100 turbines each rated at 1.5 megawatts. American Electric Power (AEP) developed, built portions of the project and owns the Trent Mesa Wind Farm. TXU purchases the electricity produced at the power plant under a long-term agreement. GE Wind Energy, manufacturer of the 1.5-megawatt wind turbines, provides certain operations and maintenance functions.
Oatman has done his homework on wind as an energy source and its development.
"Up in Minnesota, there are people building their own wind farms, they believe in it so much. Some are financing their own. It's too late in life to think about that...Our children are all grown. Their children are almost grown. We're in the winter of life. We have three grandsons in college. I think it will benefit them more," says Oatman.
These two landowners seem satisfied with their lease agreements.
"Generally, I believe the landowners have been very pleased with the money they are receiving in comparison to the small amount of property we actually use," says Rick Walker, director of Business Development for AEP Wind Energy, LLC in Dallas. It's parent company, American Electric Power (AEP), is the nation's biggest generator of electricity and a leading coal-mining company. "Most of them love the extra money. They are trying to make a living ranching or relying on oil and gas revenues or cotton farming, and they can continue to do that. That's the nice things about wind turbines."
Harvesting their new, invisible cash crop does not require farmers or ranchers to forego planting or grazing, plus, at the end of the contract, the owner gets that land back.
"What we as the developers of the projects like to do is sign a long-term contract. Ten years is the shortest. Twenty is better. We can get better financing. The economics are also better for the landowner, who receives a fairly steady revenue stream during that 20 year period," Walker notes.
Most developers are reluctant to discuss the details of their agreements, and the specific dollar figures paid to landowners are typically proprietary. However, according to the American Wind Energy Association, mutually reinforcing anecdotal evidence puts the typical average figure at about $3,000 per turbine annually.
Criteria for wind farm site
Walker says he gets several inquiries per month from landowners that want wind turbines installed on their property.
"Word has gotten out that this can be very lucrative for landowners with windy property. But they still have to be in close proximity to electric lines. There are thousands of acres in West Texas, but in some places, the electric wires are smaller than a pencil. We can't put a wind farm at that site. There isn't sufficient transmission to East Texas. It is not feasible," he explains.
Predating Trent Mesa, AEP has been operating a wind farm in far West Texas near Fort Davis since 1994. The Desert Sky wind power facility, which encompasses 15 sections of land on the Indian mesa near McCamey, represents about a $175 million investment by AEP. Southwest Mesa was the first wind power project in the same area where Desert Sky is located, founded and owned by AEP.
Walker says AEP began monitoring wind in 1993 and 1994 at 30 different locations, in Texas and Oklahoma. Like the oil landman, the person in search of property to lease for a potential wind farm takes a variety of additional factors into consideration.
"Hunting drives property values in areas of the state where there's good hunting. When we go out, one of the things we try to look at is the best and highest value use of the property. We try to figure out what is a reasonable payment. Somewhere it never rains, and you can't hunt, can't raise cattle or cotton, maybe that lease shouldn't pay as much as somewhere else. On the other hand, it may be paid for the quality of wind speed," he says.
Another factor is that the site must be located within the electrical grid for the state of Texas. From Fort Davis West to El Paso, much of the Panhandle (north of Amarillo), Tex-arkana, and the area around Beaumont are connected in with other states' power grids.
Walker says company executives are especially enthusiastic about wind power's ability to deliver electricity at a stable price. "You can give them a firm number for 20 years," he notes, "which is something you can't do with natural gas. People in the energy business want predictability, and you can get that now with wind."
He does point out that although wind does not decline, it fluctuates.
"Power production from year to year can come in at 15 percent below to 15 percent above the long-term average," he says.
Downtime for unanticipated mechanical or construction problems can also affect revenues for landowners and school districts. The Trent ISD found that out recently when foundation problems at AEP's Trent Mesa Wind Farm caused a decline in its value from $89 million in 2002 to $67.5 million in 2003, a 32 percent drop.
In some ways, the district is a victim of its own good fortune. The Trent ISD's tax value nearly tripled with the addition of the wind plant, jumping from $43.2 million in 2001 to $122.8 million in 2002. The increased tax base resulting from the wind farm's property value qualified the small district as a Chapter 41, or high-wealth district, which requires it to relinquish a portion of its revenues to the state this year under the Robin Hood plan. Values are expected to rebound next year.
Texas law favors wind energy
The problem now is that the farms are able to generate more electricity than can be transmitted to potential customers. McCamey, for example, has too much power and not enough pull to get it to the people that could use it. The big task ahead is getting sufficient lines to connect farms in places like McCamey, Van Horn and Big Spring to major networks.
Toward that end, two bills were introduced in the 78th Texas Legislature. H.B. 2548, allows the Public Utility Commission (PUC) to order construction of power lines to help meet the state's mandated goals for obtaining power from renewable sources. HB 2910, which was passed and signed by the governor, updates the state's mandated goal of obtaining 3 percent of power from renewable energy sources by 2009 by adding a longer-range goal of meeting a 10 percent goal by 2019.
"There's an effort in the next session of the Texas Legislature to make it 10,000 megawatts," says Russell Smith, executive director for the Texas Renewable Energy Industries Association in Austin. "We're at about 1,100 kilowatts now towards the 2,000 new megawatts by 2009. That's more than double the first benchmark."
Renewable energy would get a modest boost under tentative legislation considered in both houses of Congress. Details are still being hammered out. Like the Texas legislation, the bill also creates a credit trading system to help power companies meet the new requirement.
"Another aspect of these credit programs is as more and more demands are made on the industry to reduce pollution, rather than reduce pollution where they are, entities in other states can purchase these Texas wind credits to meet those requirements. So what we're seeing evolves into a much broader set of drivers for developing rural renewable energy markets," Smith suggests.
Although municipalities and co-ops are exempt from compliance with the Legislature's mandate, Smith says some cities, like Austin and San Antonio, have green programs and sign up customers who are willing to pay more for renewable energy.
Uncertainty regarding the extension of the federal production tax credit is behind the scramble to complete phases of the state's current wind projects as soon as possible.
"It's part of the energy bill being discussed right now in Congress to be extended three years," Smith says. "If they don't, it comes to an end at the end of this year. That changes the economics. So profitability is a combination of the portfolio standard and the tax credit. It causes the developer to get projects in by the time that production tax credit runs out."
Smith believes the future of wind development depends on public policy: "...it's clean power, it doesn't deplete, it brings economic development to rural communities and provides wealth to individuals. What can be wrong with that?"
Although other states have had some test cases regarding wind rights, Texas has not. But if wind becomes the above ground equivalent to water as a natural resource, don't be surprised if the Legislature eventually passes laws to regulate its capture and usage, perhaps including spacing requirements and production limits.
