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New Energy Economics: Liens on Wind Property Create Landowner Credit Problems

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Cole Gustafson, NDSU Biofuels Economist Cole Gustafson, NDSU Biofuels Economist
Landowners contemplating a wind project should review carefully the financial records of the developer and those firms aligned with the project.

By Cole Gustafson, Biofuels Economist

NDSU Extension Service

Landowners who are contemplating signing either options or easements for wind development have to be especially careful during these periods of turbulence in our nation’s financial markets.

In a surprising move, creditors for Noble Environmental Power filed more than $3 million worth of liens against the property of 43 landowners who previously signed land easements with the developer in New York.

While the problem is unfolding miles away on the East Coast, Midwest landowners need to monitor their agreements carefully and the financial health of developers they have signed up with.

The New York creditors include two locals of the International Brotherhood of Electrical Workers and the electrical contractor Stuart C. Irby Co. of Jackson, Miss. The company actually filing the liens is Aristeo Construction, a Michigan-based company that laid the roads and foundations and erected Noble’s towers in Franklin County, N.Y. In total, 43 liens were filed, which is one for each of the 43 land parcels that the towers stand on.

Placement of these liens on properties jeopardizes the financial well-being of the people involved. Most landowners simply expect a new wind development to provide them with a new source of income. They fail to realize the financial obligations and risks involved when signing project options and agreements.

Liens filed against a landowner’s property become part of the landowner’s financial record and most likely will lower his or her credit scores. Credit scores now are widely used by lenders to determine credit worthiness for a new loan and by merchants who are evaluating someone’s ability to buy a large item on store credit.

Many insurance companies also utilize credit scores in their premium rating process. Customers with higher scores are deemed to have higher character and less likely to defraud the company. In the current recession, many people are struggling to maintain their credit scores, even without the complications of liens being filed against their property.

Landowners contemplating a wind project should review carefully the financial records of the developer and those firms aligned with the project that potentially could provide equipment or construction services. A strong record of past performance and a strong balance sheet, especially with high levels of equity and cash flow, are two indicators of financial strength.

Moreover, potential wind investors need to evaluate which developers they are going to be partnering with very carefully. Even signing an option locks a person in and precludes him or her from participating in unforeseen projects that may become available later that are more attractive. The whole process is not without risk.

Landowners should consult with an attorney who specializes in wind contracts. These attorneys are professionals and know which contract clauses are most onerous. Landowners always will face some investment risk, but a competent attorney can guide and advise them if potential risks equate with returns that are expected to accrue.


NDSU Agriculture Communication

Source:Cole Gustafson, (701) 231-7096, cole.gustafson@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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