High Mesa Renewables, LLC

Wind Turbine Cash Flows[1] and Value Maximization for Landowners

 

Congratulations, you have a valuable asset related to your wind energy cash flows!  It is an exciting time in the development and expansion of renewable energy in the United States and you and your land are vital to our country’s efforts to diversify its sources of energy and protect the environment.

High Mesa Renewables, LLC (HMR) was founded to provide you the opportunity to maximize value and reduce risk for your family by treating your wind turbine assets as a financial investment. Most of our clients have significant land wealth and frequently see their wind assets as “tied to the land”. We can separate your commitment to land from your investment in wind cash flow. Our transaction is strictly financial and pays an upfront payment in exchange for the base payment stream, plus a share of the royalties above the base. The advantages of the HMR model are:  1) You get to keep the bulk of your royalties above the minimum payment, 2) we do not interfere with your surface lands and 3) we are not buying any interest in your underlying wind rights.

Wind Contracts: Risks of Ownership

While wind contracts vary widely, most of them include the following terms that mean the payments are not guaranteed:

·      You bear the operating risk of the turbines:  If one of your turbines becomes inoperable or permanently out of service for any reason (fire, accident, acts of God, etc.) the operator does not owe you that proportion of your payments.

·      Payments can go away entirely:  Most contracts have a clause that allows the operator to terminate at any time and for any reason.   Read your contract carefully!

Other Risks:  Outside of the contract, your cash flow asset is subject to normal investment risks

·      Changes in income and estate taxes: Higher tax rates mean less to your family.

·      Inflation:  Most escalation clauses average 1-2% per year over 30-50 years.   Inflation has run much higher than this, and if this recurs, would significantly erode the value of your payments.

Read your contract carefully, or have your lawyer or financial advisor read it

 

The Investment / Diversification Decision

Land is a “legacy asset” for many families. It is frequently where our clients live and have raised their children for generations, and for farmers and ranchers it is their primary source of income.  It can be passed down to your heirs as a birthright, and normally rises in value with inflation. The wind cash flows are very different. (see discussion above, and please read your contract!) How to tell whether you should consider diversifying:

1.    Ask your High Mesa representative for a non-binding quote.   This value will be your “Wind Investment”.   In this example we will use $250,000.

2.    Decide on a “Concentration Limit”.  If you have a financial investment account (stocks, bonds, mutual funds, etc.), ask your financial advisor what concentration they use in constructing a good portfolio.  We would expect a professional advisor to answer from 2-5% depending on the size of your portfolio.  Or pick your own limit.  In our example we will use 2.5%

3.    Divide your Wind Investment by your Concentration Limit and multiply by 100.  This tells you how big your portfolio would need to be for full diversification, given your exposure to the risks of your wind contract.  Too high a concentration indicates that diversification would be helpful to your overall risk/reward exposure.

In our example, a client with $250,000 in Wind Investment and who is comfortable with a 2.5% Concentration Limit would need to have an investment portfolio of $10,000,000.   The formula is: $250,000 divided by 2.5 times 100 equals $10,000,000.   

If the client has more than this in their portfolio, good for them!   If they have less, their family is too exposed to a concentration of the risks discussed above and should consider diversifying by selling some or all of their wind assets and buying other financial investments.

How Does High Mesa Make Money?   HMR is building a nationwide portfolio of wind cash flows with a target of over $100 million.   Our ultimate investors are pensions and endowments with billions of dollars in their portfolio.  We are diversifying across states, operators, makers of turbines and rotors, etc. in a way that a single landowner cannot.  If your wind farm shuts down, it is a 100% loss to your cash flow.  If a single turbine goes down it is still a significant loss.  Our risk is exactly the same with regards to each contract but vastly diversified, so we can afford to give you a fair price and help both parties build a better financial portfolio.

How to Decide:  Your High Mesa representative can help you determine the value of your Wind Investment and can help with the calculation above.  The decision is yours.  We would be happy to include your lawyer or investment advisor in the conversation, in fact we encourage it (since we cannot give legal or investment advice).   Please call us to get started 855-444-6372.