A policy announcement by the Western Australian (WA) State Government has triggered a significant surge in renewable energy projects across the state. Given Western Australia’s vast non-metropolitan areas and the relative ease of connecting to the South-West Interconnected System (SWIS), agricultural landowners are being approached by energy companies seeking to establish renewable energy projects on their properties.
The WA State Government has set ambitious targets for greenhouse gas (GHG) emissions reduction – an 80% reduction below 2020 levels by 2030, with net zero emissions by 2050. This commitment aligns with the planned transition away from coal-fired power generation by 2030, making renewable energy a critical part of Western Australia’s energy future. However, while these projects hold promise, they also introduce complexities that landowners must carefully evaluate. Negative experiences in other states, coupled with the urgency from proponents to sign exclusivity agreements, have led to a cautious approach from many landowners.
Farmanco conducted a short desktop study to further understand the economic, social and environmental impact of this policy announcement and how growers and local government are navigating the change. This study was supported by the South-West WA Drought Resilience Adoption and Innovation Hub, through funding from the Australian Government’s Future Drought Fund.
Some of the findings are summarised below.
Economic impacts and opportunities
No two projects are the same. Each proponent will have an amount of electricity they are looking to produce meaning some projects have as few as two landowners while others have large areas and large numbers of landowners within a shire.
With a varying number of landowners in each project, proponents have different methods of negotiating meaning there is a wide range of payments that can be agreed upon.
Each grower who receives a proposal will have different numbers of turbines on their property when compared to others in the same project.
The two common remuneration models are the flat-fee model and the profit-share model.
The profit-share model is the less widely used model whereby the grower receives payment for the electricity generated by the wind turbines on their property. The profit-share model requires transparency from the project owner/energy company as to how much electricity is generated annually as that determines the payment the landowner receives. There is potential for higher income as remuneration is based on electricity generation. Aside from the transparency required to confirm electricity production, the other large risk is the turbines captured in these agreements are likely to be the ones turned off first in high electricity production events as they are costing the most at those times.
The second and most common agreement is the flat fee model, whereby the landowner receives a flat fee per annum per turbine located on their property. The landowner is paid based on the name-plate capacity of the turbine, they are not paid a dollar amount for every hour of electricity generation. For example, if the proposal is to receive $8,000/MW/H/turbine and the name-plate capacity is 6MW/H, the grower is paid $8,000 x 6MW/H = $48,000/turbine/annum.
Farmanco’s Profit Series benchmarking data shows that the average farm operating profit in Western Australia’s high rainfall zone is approximately $309 per hectare annually. If a renewable energy project excludes 10 hectares of farmland, the lost profit over five years could total $15,450. However, lease payments exceeding this amount would make hosting a renewable energy project financially attractive.
Negotiating agreements and contracts
During the negotiation phase, there can be a number of other costs the landowners would be subject to that should be borne by the proponent, such as accounting, legal or consulting fees.
There is evidence of other fees being successfully negotiated by landowners including success fees being paid at time of contract signing as well as part payments for land access at the commencement of the project. Consumer Price Index (CPI) increases are also generally included in agreements. Sinking funds are created early in the project life with funds contributed annually to cover the costs of decommissioning and rehabilitation.
The ‘herd mentality’ of having all landowners involved in the same project working toward the same goal appears to be successful. All members of the project are aware they will have a different number of turbines on their property but will receive the same remuneration as other landowners in the project per turbine. This appears to be a win-win as the proponent is negotiating with one landowner representing the group for the proposal, while the landowners too benefit from having one person represent them. Negotiating on behalf of a group requires someone who is both dedicated and well-informed, and who has the full trust of the group to represent their interests effectively.
Economic takeaways: what landowners should know
The financial viability of hosting a renewable energy project varies based on land uses restricting lease agreements and payment. Grower must assess the net return of a renewable energy lease versus potential profits from business-as-usual farming operations.
Remuneration models:
- Profit share – payment fluctuate based on energy generation
- Flat fee – payments are based on nameplate capacity of turbines
Landowners can secure better terms and have their costs covered by negotiating collectively through a trusted representative.
Environmental impacts and responsibilities
Comprehensive environmental impact assessments should be mandatory for all renewable energy projects. Impacts to fauna and flora should be fully assessed and government environmental approval obtained. Every effort should be made to locate the turbines and infrastructure in areas that are not prime agricultural land.
Best practice should include avoiding vegetation clearing and minimising disruptions to local water systems. The rehabilitation of each site should be negotiated with the proponent as part of the project proposal. Agreement to create a sinking fund should be reached in the negotiation phase and creation of the fund should occur early in the life of the project with these funds used to rehabilitate all sites.
Community impacts and local benefits
Local governments have also been caught off-guard by the rapid increase in renewable energy project proposals, often finding out about them from landowners rather than directly from proponents. This lack of communication complicates local government planning processes, as they must address substantial, often costly, infrastructure and regulatory requirements with little preparation time.
The local governments contacted advised their interactions with the proponents had not been adequate. Some had found out about projects from landowners asking for information. There is no policy or direction provided by the State Government for renewable energy projects.
Local governments are required to incur significant costs as part of the construction and operation of renewable energy projects.
The construction phase requires gravel and water for roads, accommodation for workers and upgrades to schools, hospitals and other infrastructure to support the increased population. Ideally, permanent housing would be built to allow the full-time workforce to relocate their families to the town, as well as to support the additional teachers, nurses and doctors required.
These costs are not borne by the proponents, take significant time and are required for projects to proceed. Without early interactions with proponents, it is difficult for local governments to meet these requirements at short notice.
Local governments would like long-term lasting benefits for the community. Community funds will be established using contributions from the projects and managed by elected community representatives. Local governments will not receive direct funding from the proponents; instead, they will need to apply to the trustees of the community fund to access funding for their initiatives.
Job creation and opportunities for other non-farming businesses to prosper also exist. Younger people, either from a farming background or not, may wish to seek employment with the project. This may be to ensure they can remain within their community or because the desired job exists.
Other local businesses have the opportunity to prosper from renewable energy projects. Earthmoving businesses, electrical businesses and farmers with access to gravel and water all have the opportunity to generate income during the construction and operation phases of the project.
Conclusions
Renewable energy projects, specifically wind turbines, can be integrated into farming systems and regional communities. There is a significant amount of negotiation, meetings and consultation that needs to occur with landowners and local government.
Landowners have the potential to be well rewarded for contributing their land to renewable energy projects. Acting as a group appears to achieve a favourable outcome for those involved. One comment that stands out is “it is important to remember they came to us”, which should be kept in mind during the negotiation phase.
There should be no out of pocket expense incurred by the landowners and every endeavour made to situate the turbines on unproductive land.
Early engagement with local governments should occur out of courtesy as well as to allow them as much time as possible to plan for such large projects. Involvement from the State Government in terms of codes of conduct, policy direction and assistance would benefit local government, landowners and proponents.
The community also stands to benefit from renewable energy projects if there is sufficient warning provided to local government. Job creation, a larger population as well as the community benefit fund are all positive outcome from renewable projects.
For any additional information please do not hesitate to get in contact with Farmanco and keep an eye out for their three-part podcast series from this project, which will be available from July 7.
Podcast 1: Why Renewables Are Knocking on WA Farm Gates. Listen to this episode.
Podcast 2: Are Renewable Energy Projects Worth It for WA Growers? Listen to this episode.
Podcast 3: How Communities Can Stay Ahead of the Renewable Energy Curve
This project is supported by the South-West WA Drought Resilience Adoption and Innovation Hub, through funding from the Australian Government’s Future Drought Fund.