Negotiating Wind Park Easements and Analyzing Comparable Sales presented by

1. Justin Bierschwale Bierschwale Appraisals PO Box 154 517 College Street Junction, TX 76849 Ph (325) 446-3052 jbierschwale@gmail.com Terry Argotsinger Stalcup Ag Service, Inc. P O Box 67 910 Flindt Drive Storm Lake, IA 50588 712-732-6462 targotsinger@stalcupag.com Negotiating Wind Park Easements andAnalyzing Comparable Salespresented by

2. Take a look from their perspective first

3. Wind Project Development Process

4. Locating Wind Parks • Power Grid • Wind Velocity • State and Federal Mandates (cap and trade) • Tax incentives • Power demand • Will of the people

5. Mutual desire to make it compatible for everyone

6. Cost of Construction1.5 MWh turbine • Blades $300,000 • Generator $1,250,000 • Transportation $225,000 • Tower $330,000 • Materials $400,000 • Labor $400,000 • Engineering, Dev., etc $80,000 • $3,000,000 / 1.5 Mwh = $2,000/Kwh RCN • Deprec., O&M, Land rent, RE Tax – $60,000 • Debt Service ?

7. Income Stream • Electricity - $35 to $100 per Mwh at the hub • Carbon Credits - $5 to $25 per mmt • PTC/ITC/Direct payments - $.021 per Kwh • Depreciation – 5 year equipment

8. Actual Production(1.5 MW Turbine) • 4,000,000 Kwh x $.055/Kwh = $220,000 • 4,000,000 Kwh x $.021/Kwh PTC = $84,000 • 1.5 Mwh x 2,000 mmt CO2/Mwh x $15/mmt = $45,000 SO2, NOx – EPA clearing house for pollution credits (Meets Electricity needs for 300 people/year)

9. The Queue • Federal Energy Regulatory Commission - FERC • Independent Transmission System Operators - ISOhttp://www.midwestmarket.org/page/Total+Wind+Generation • $200,000 to $300,000 for permits • Application • Feasibility Study • System Impact Study • Facilities Study • 459 to 884 days

10. Method of Negotiation • Get legal advice • Individually • As a group • Trustee, LLC – Combine wind rights into one package if rights can be separated under state code • Option, Lease, Easement • Privacy clause – Agreement and Memorandum

11. Key Terms of Agreement • 3 phases Development – Construction - Operations • Rates • Site selection • Insurance • Re-powering • Decommissioning • Most Favored Nation

12. Development Phase • 3 to 5 years • State mandates with limits – 7 years • http://www.dsireusa.org/ • $3 to $40 per acre per year

13. Construction Phase • Usually less than one year • One time payment • Crop Damages • Compaction • Access • Laydown areas • Crane paths

14. Operations Phase • 30 to 90 years • Fixed Payments - $2,500 - $6,000 per MW • CPI-U minimum 2% • Royalty – individual tower 3,4,5 or 6% • Royalty – prorated • Fixed plus royalty • Per acre plus royalty – 40/60 • Renewable energy credits • Carbon credits • Roads, cables, buildings, substation

15. Site Selection • Proposed plat • Final plat • Landowner approval • The larger the turbine the fewer per farm • 1.1 fall down distance – state code ? • Setbacks from roads, dwellings

16. Insurance • State code minimums • $2,000,000 to $10,000,000 • Adjust to inflation

17. Re-Powering okay but renegotiate

18. Decommissioning 5 feet 400 cu yds Performance bond for 1.5 x cost of removal 180 days

19. Most Favored Nation • Same terms for all agreements • Private negotiation - addendum

20. ELECTRIC TRANSMISSION SYSTEM OF TEXAS

21. FIRST WIND DEVELOPMENT

22. CONTINUED DEVELOPMENT

23. BOTTLENECK

24. DEVELOPERS AREN’T STUPIDCURRENT DEVELOPMENT

25. DEVELOPERS AREN’T STUPIDTIRED OF WAITING FOR EXPANSION FP&L PRIVATELY BUILT TRANSMISSION LINE

26. WHAT THE TRANSMISSION COMPANIES ARE SAYING • $4.93 BILLION IN EXPANSION PROJECTS • 2400 MILES OF NEW TRANSMISSION • POTENTIAL FOR 18.5 GIGAWATTS IN NEW WIND POWER PROJECTS • AEP & DUKE ENERGY – 240 MILES OF 765 KV TRANSMISSION LINES, EST. $1 BILLION • COMING ONLINE WITHIN 8 YEARS

28. ONSITE DATA • Anemometers • Research Facilities • Terrain • Neighborhood • Existing Turbines • Data, Data, Data

29. Regulations • Siting • Visual & Noise • Wildlife Impact • Development Stages • County Zoning? • Safety? • Synchronization with Power Grid • Property Tax

30. Who All Gets Involved • Wind Developer • State Government • Local Government • Federal Agencies • Community Groups & Activists • Environmental Organizations & Activists • General Public

31. Future Worth of $1.00 • Future Worth of $1.00 Per Period • Sinking Fund Factor • Present Worth of $1.00 • Present Worth of $1.00 Per Period • Annuity Worth of $1.00 TODAY BACK TO BASICS--6 FUNCTIONS OF $1.00

32. INTERNAL RATE OF RETURN • RATE THAT SETS THE VALUE OF FUTURE CASH FLOWS EQUAL TO THE CURRENT VALUE IRR??? 10.4%

33. SALE DETAILS • 640 Acres • Sale Price $1,581,257 • Land Contributory Value: $2,000/Acre • Residual Wind Lease Contribution: $301,257 • Number of Turbines: 5 • Lease Period at time of sale: Development

34. FINDING THE PIECES

35. CONSTRUCT THE TIMELINE

36. THINGS TO WATCH FOR

37. RENTS

39. Possible Expenses to Consider?

40. CALCULATE THE IRR IRR = 17.36%

41. SUBJECT DETAILS • 320 ACRES • ROYALTY PAYMENTS – SAME AS SALE • TERMS – SAME AS SALE • NUMBER OF TURBINES – 2 • STAGE ON DATE OF APPRAISAL • DEVELOPMENT

42. CONSTRUCT THE TIMELINE

43. APPLY IT 17% IRR NPV = $131,670 320 ACRES X $2,500/ACRE = $800,000 + CV OF WIND LEASE: $131,000 TOTAL VALUE = $931,000

44. What Ifs: Justin’s Fuzzy Logic • What if the Subject already had turbines producing and had 5 years of payment history? • What if the Subject sat right next to an expanding wind farm but did not yet have a lease in place?

45. Things to Consider • Make certain you have measured value as it contributes to the whole package, i.e. avoid flat out summation. • Extract Rates as they relate to contributory value, not as they stand separate and apart from the land. • Extract and Apply in the exact same way. • If you include bonus payments in extraction, include them in application, etc. • Step Away from the ledge at the end of the day and think through your conclusions. Are they logical?

46. QUESTIONS