Marc Schober is the editor of Farmland Forecast an educational blog devoted to investments in agriculture and farmland.
Wind blowing on Wall Street
Oct 27, 2009
Wall Street is beginning to invest in wind energy again, after a six month absence according to the Wall Street Journal. Morgan Stanley and Citigroup have each invested $100 million to finance separate wind farms in August in order to take advantage of a new federal program that pays substantial cash grants to encourage wind development. The cash rebates are part of February's stimulus bill.
This could be the a new beginning of wind development and other alternative energies, such as solar and geothermal. Developers see the cash grant program as such a good deal, it may grow much larger than its Washington creators expect. The Energy and Treasury departments expect to spend $3 billion on the program, but some Wall Street bankers expect applications to grow to $10 billion. A government spokesman said $800 million in grants were submitted during the first four weeks.
The program gives a cash rebate for 30% of the cost of building a renewable-energy facility, awarded 60 days after an application is approved. Investors are also given valuable accelerated depreciation deductions, which help offset taxes.
An earlier government renewable energy program gave wind developers tax credits over 10 years, but as the economy deteriorated over the last two years, the demand for wind development disappeared. The new cash grants are offering the potential for attractive returns. Bankers interviewed by the Wall Street Journal expect deals to provide an annual return of anywhere from 9% to 15%.
Wall Street is not the only investors attracted to the cash grants. Iberdrola SA, a Spanish wind developer, expects to tap $500 million in cash grants for U.S. wind projects. Cash grants will also benefit utilities and wind turbine manufacturers.
Wind energy is going to be an exciting development over the next couple years. One way to play this trend and to capitalize on the cash grants is to invest in farmland. The wind developers have to find somewhere to put there wind turbines and one of the first places they look is farmland.
Landowners have the opportunity to lease farmland for wind development that does not interfere with farming operations. The land owner is compensated through an annual payment per wind turbine that is estimated to be between $2,000 and $5,000 according to the South Dakota Energy Infrastructure Authority. One turbine can be placed on roughly 60 acres.
Wind development will provide substantial income opportunities to farmland owners in the near future.
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