Ep 8: Compensation for landowners as renewables surge

Rebecca Kent

Welcome to another episode of JLL’s Perspectives podcast. The race to drive down carbon emissions is on. A key part of reaching net zero targets is investing in renewable sources of energy such as the sun and wind. But it does take vast amounts of infrastructure to produce that energy and then to transmit it to where it needs to be. Typically, that infrastructure needs to be built on rural landholdings because of their location and the sheer size of them. But what options do landowners have when a renewables developer is honing in on their property? The answer to that can be quite complicated. But my three guests are experts in this area in Australia and the United States, and in this episode they discuss with me the type of infrastructure being built and by whom, the rights of landowners and how they can have fruitful conversations with renewables developers.

Will Gurry
I’m Will Gurry. I head up the Agri business valuations team at JLL here in Australia.
we work for both acquiring authorities and landholders on various projects from road, rail, powerline, pipelines and so forth.

Larry Susskind

I'm Larry Susskind. I'm a professor at the Massachusetts Institute of Technology, MIT.

I'm also vice chair of something called the program on negotiation at Harvard Law School that I helped to start 40 years ago that teaches about negotiation and dispute resolution. Third and finally I'm the founder and part of the consensus-building institute. We provide mediation services in some of the most raucous natural resource disputes around the world.

Jamahl Waddington 

Jamahl Waddington. I'm head of infrastructure advisory for JLL in Australia. Our team typically acquire land and interests in land for infrastructure projects. Those projects can vary between renewable energy projects, transmission lines, gas pipelines, road, rail, et cetera. We work almost exclusively for acquiring authorities and we deliver projects all over the country.

Rebecca Kent
 I’m Rebecca Kent, host of this podcast. Enjoy the conversation.

Rebecca Kent
We're going to talk about how an acceleration in renewables infrastructure is affecting landowners.
And I say acceleration. I do understand there are probably, likely, record amounts of money being put into renewables projects at the moment. I don't suppose either Jamahl or Will you can quantify at all, or give some sense of how big this landscape is in Australia? And then, Larry, I'll ask the same of you in the US.

Jamahl Waddington
 I don't know the amount of investment going to renewables in the tens of billions of dollars, but it's substantial.
Obviously, we're on a path to net zero by 2050 here in Australia, so I guess probably one interesting statistic and where we've seen a lot of issues in Australia is in order to deliver the net zero targets, the estimate is that we need to build 10,000 kilometres of new transmission lines in Australia to deliver that. And that’s where a lot of the social issues arise.
So 10,000 km is a lot of new development and a lot of communities affected and a lot of properties impacted and a lot of stakeholders to be engaged with.

Will Gurry
It's the quantum, but it's also the acceleration of these projects that is causing the issues.
In Australia we have a lot of infrastructure: road, rail, pipelines, etcetera.
A lot of those projects are quite predictable. Whereas renewables projects, and particularly the transmission associated with those projects, in some ways, they’ve arisen overnight here in Australia. So that really accelerates the issue. The need to get the power lines in is sped up by the carbon targets and it creates the frenzy and the reactions that we see in the market.

One of the major issues we've got in Australia is to some extent we're reversing the old system which was the source of power, the substation was usually located beside it. So, whether it be hydro or coal or something like that, it was located beside the source and then fed into the network.
We're now going out into the regions to where the source is the sun, the wind, the hydro, whatever it is, and we've got this need to transmit back. So, we're adding another leg to transmission. We need to transmit back to the substation to then feed it into community.

Rebecca Kent
Larry, from one vast continent to another. Can you perhaps help us put our finger on the size and scale of these projects at the moment?

Larry Susskind 
So we've had in the last three years at least a doubling in the number of efforts of people seeking permits to build renewable energy facilities. This is across the whole country, it's not in one region.

There's going to be a very big focus in the next three to five years on offshore wind, especially on the East Coast. And we don't have anybody planning behind the scenes determining what energy we need. We just have private initiatives to see if they can be first to build something and get a permit and go ahead. It's 100% privately financed, but now with substantial tax breaks it's changed the calculation.

Rebecca Kent

And what does the transmission infrastructure look like? It's above ground power lines, is it?

Will Gurry

In the main, yeah. We've done some underground power lines which obviously once they're installed don't have a long-lasting visual effect. They have quite a dramatic disturbance affect during construction. That's a big channel being done. A very big channel.

But in the main it's 220 KV (kilovolt) and larger power lines. In the context of Australia that's typically a lattice tower with four legs and 50-plus metres of height, with six or eight wires strung from it. So it’s your big ugly power line. Not the little one.

Rebecca Kent
So pretty unsightly.

Will Gurry
Unsightly is the word – I don't think anyone would deny that. And visual blight. Particularly in more closely settled areas. So, smaller farms and rural lifestyle areas is absolutely the number one concern.
So we have a framework of how we do our calculations and sort out compensation.
But putting numbers on a visual impact to property is quite an art. It takes a fair bit of experience.

Rebecca Kent
Yeah, absolutely.
And Jamahl, you're doing a lot of the negotiating for land acquisition on behalf of government and developers. Who are you talking to? Put a face to some of the landowners for us.

Jamahl Waddington

Typically the landowners are traditionally farmers. So they're graziers in some of the more remote areas.
What we're seeing though is some of our projects coming closer into towns.
We're dealing with developers. We're dealing with rural lifestyle properties as well. So smaller properties. For example, people from Melbourne during COVID wanted to get out of Melbourne and get a nice little piece of land an hour from Melbourne.
So they might have a few acres there, they might have 10 or 20 hectares. So we're dealing with those people and proposing to put large, 100-metre wide easements accommodating a 500 KV transmission line through a rural lifestyle block. So the impact of that is enormous.
Irrigation properties and as I said, graziers. A lot of these people have been there for three, four, five generations so they are connected to the land and have an emotional attachment to the land.

Rebecca Kent

Can it be the case with some of these landowners that you could offer all the compensation in the world and they will still dig their heels in?

Jamahl Waddington

Yeah. Compensation is one thing and we can compensate people for the interest in land that they're losing, that's fine. But you can't compensate for emotional attachment.

Some people are that connected that they will never cash the cheque because they're not interested in the money.

Rebecca Kent
Yeah, right. And so, Larry, I know you and your team in the States have identified 53 utility scale wind, solar and geothermal energy projects (just to quote one of your papers here) that were delayed or blocked between 2008 and 2021.
Do you think there was a lack of communication at play there, or, listening to Jamahl talk about second, third and fourth-generation farmers, is it values? Is that some of the stuff you're experiencing?

Larry Susskind
We're looking at projects from a different angle. The transmission lines are up.
The issue is where will the energy, the electricity, be produced? And wherever it is produced it will get attached to the existing transmission lines.
So when we say there's opposition, the opposition is to buying, or leasing more likely, some thousands of acres of an existing farm, part of an existing farm in the Midwest, and putting up solar arrays that go as far as you can see.
And there's a preference on the farmer's part for leasing this property because they'll get it back and the next generation will have a decision. The project will last 30-40 years and then they'll take everything down. It will not have adversely – certainly a solar facility should not have adversely affected anything. And the next generation can do what they want.

The battles locally are over the decision of a private investor to buy rights from large landowners, agriculturalists, and then build vast – I mean, a 200, 300 megawatt solar facility has a lot of solar arrays, but they're not that high and they're off the ground. Sheep herders can make money by leasing sheep to maintain the grass and the growth underneath these.
It's a very big deal for some of the agriculturalists to have a co-interest in what gets built in terms of the solar facilities.

So the opposition to the solar facility, some of the farmers can make way more money leasing the land, and so they want to make a private deal with the developer to do that.
Their neighbours who have no intention to do that, or who aren't offered, don't like the idea. They don't like the idea that their neighbours are going to make a lot of money leasing land or selling and they're not being asked.
And then there are others who just don't like the change from agriculture to another use, and they're also worried that everything else in the general area might become more industrialised if this happens and their agricultural lifestyle will be destroyed.
There are people with environmental values who don't want either solar facilities or wind facilities because some of the habitats that will be affected and destroyed are endangered habitats.
And why a developer who had 10,000 acres to choose from chose 1000 with a mapped habitat, I don't know.

Rebecca Kent
But developers presumably have very good reason for siting particular areas.

Larry Susskind 
Yes, they know that they can with a relatively short line, connect to an existing transmission line.

Rebecca Kent
And to clarify, Jamahl and Will in Australia, we're talking about landowners being encouraged to sell? Or lease? And over what period of time? Just so we can compare.

Jamahl Waddington
It's a little bit of both. But I guess in the Australian context, I would say that wind is more prevalent, and the preference for developers is really to lease land for wind turbines. The compensation, if you like, for establishing wind turbines on a property is substantial now. The market is being ratcheted up.

Unlike a transmission line where you have heads of compensation that are defined within the state-based legislation, the negotiation of rent for a wind turbine is not legislative. So it's really a market approach and you negotiate what you can from a landowner.
So we've got examples here in Australia where landowners, potentially, will get in excess of $10 million a year in rent for the establishment of a substantial wind farm on their property. So that's good income to supplement sheep and cows.

Rebecca Kent
Over how many years?

Jamahl Waddington
These leases can go 20-30 years. So it's a substantial about amount of money. And it’s really another cause of some of the tensions as well, as you can imagine. That is, someone hosts a whole lot of wind turbines on their property at point A. Then the transmission line is required to come out of point A to get into the grid, and the neighbour who gets the transmission line, which is quite unsightly and 80 metres high, gets compensation which is governed by the legislation. The two don't meet. The compensation you're getting for the transmission line is a lot less.

Rebecca Kent
That's interesting. So, Will, are those parameters difficult to work within?

Will Gurry 
Each state and territory has its own legislation associated with land acquisition. In the main, that legislation, while different, mirrors each other.
So you have these concepts: You have the market value of the land acquired, whether that's a full interest for a road or rail, for example, or a partial interest.
So a power line is a partial interest as it's an easement placed on the land and it's a shared use of that space underneath the power line. So that’s the value of the land.
We also have injurious affection, which is a technical term placed on injury to the remaining lands.
So that's where we talk about visual blight, moving your vehicles under power lines, and restriction of use. That all affects how you manage the rest of the lands surrounding the power line. And it also affects its market appeal and what people would see or pay.
And then we also have severance, which doesn't play as big a role in easements because you can usually cross them and get to the other side. But in road and rail, that's an issue when your property is divided in half.

And then the other one is disturbance. So that, as I spoke about before, is disturbing the activities of the farm typically during construction, but sometimes ongoing. For example, ‘how am I going to sow my canola crop when you're driving your truck through it to go and pull the concrete to put up the towers?’
The conflicting interest that Jamahl's talking about, in the projects we're dealing with at the moment, is the guy at the very end has had the ability to come up with a commercial arrangement, and sometimes the landholder is in a very fortunate position. They might own the elevated piece of land that captures the wind and that is the A1 spot for the development of a wind farm. So they are holding the golden goose and they are able to negotiate a commercial outcome.
The guys that are affected by the transmission between that site and the substation or the connection, are not able to command that level of negotiation. There isn't a commercial aspect to this.

I must say, all the projects that we work on now have an element of commercial uplift. That's not something that we calculate, it's something that the project proponents calculate on top of what we decide is appropriate compensation.
Those commercial uplifts are getting more and more generous as time goes on and that is because people need to compete with this level of negotiation.

We've also got what has come in recently and in some states is largely unknown, and it's called different things, but for the purpose of today, I'll call it the community benefits payment. That is an additional payment again, that affected landholders are getting, and that is usually calculated on a per length of easement. So you get a certain sum per kilometre of easement, no matter what the value of your land, no matter what the impact. And again, that's trying to offset that commercial arrangement.

To be honest, here in Australia, the competing nature of all this, or the comparative nature, is that transmission that is essentially a right to land, to use it for an easement, which is governed by legislation, is having to compete with the last person in the district who did a deal with a private mining company.

So, we can't escape, ‘My neighbour got X for their property that's been used for this use. Sure, it's not the same use, but it’s got to be somewhere around the same value of compensation.’

Rebecca Kent
Larry, I saw you nodding your head a fair bit. Some parallels?

Larry Susskind
We have in some parts of the United States the issue that the sources of electricity are going to be in one place pretty much outside the urban area, but the need for the electricity is more in the urban area.
So we've got to move a lot of electricity around.

This effects the attitude of the folks in the rural area. Ie. ‘Why is this being built? – especially if they're not the one selling a particular piece of property, but living near it – ‘Why does this have to be built here near us? It's just going to serve those people in the city, and it's not going to help us in any way. We're opposed to it.’

But in the US, we've got California and New York that in the last 24 months, and it's about to happen in Michigan also, legislation that says ‘for large projects we no longer involve local governments in making these decisions.’.
That's because the nationally-oriented political folks are concerned about the transition and how we meet climate goals in a relatively short time frame. They no longer feel obliged to run the long processes of public participation and public engagement that have traditionally been one source of delay.

Rebecca Kent
Jamahl, there is a compulsory acquisition element, right? Can you talk us through that and when that is enacted and what it is?

Jamahl Waddington
Yes, that’s correct.
The compulsory acquisition, the enabling legislation in each state for transmission – be it the Electricity Industry Act, or whatever it may be, does give you access to the relevant land acquisition legislation.
So ultimately for a transmission line, you can compulsorily acquire – providing the governor in council or the relevant minister – approves that compulsory acquisition. But for a transmission line, you don't automatically get that right. You have to prove diligent endeavours to negotiate an agreement before a minister will grant you that right to compulsorily acquire.

But those compulsory acquisition rights don't exist for a renewable energy developer. And I guess that comes down a little bit to the amount of money paid because as Will said, it's a commercial arrangement and really doesn’t have that compulsory acquisition that you can potentially rely on if you can't get a deal done.
So that's why the prices are ratcheted up for renewable energy projects.

authorities really don't want to use compulsory acquisition. They really want to negotiate voluntary agreements with landowners to get projects done.

Rebecca Kent
You’re all negotiators and mediators. What can be done right from the outset to get landowners and developers on the same page?

Will Gurry
It’s a great question, Rebecca. The key to all this is communication. I must say it is something that could be done better by a lot of the acquiring authorities, the project proponents.

Just the clarity of communication about the project, what impact it's going to have on your land, when that impact is going to be. If you don't know the answers to those questions you're better to say that you don't know and it’s because we haven't reached that stage of planning, we're not sure what the size of our tower is going to be, we're not sure how big our trench is going to be. But then come back to the person and explain that.
There are some really predictable reactions from landholders: ‘Why should I have towers running through my paddock disrupting my business so that people in the city can have green energy because of the latest trend: carbon neutral?’ It’s a really predictable reaction.
We often get, ‘Can I put one of my cows in their backyard in the city and see how they deal with cow poo every day’, and stuff like that. ‘Why do I have to deal with this so that someone else can have a benefit?’ is it really predictive reaction.

Again, we're getting the status thing. ‘Why do I have to deal with this infrastructure in South Australia so NSW can have more power?’

Rebecca Kent
What do you say to that?

Will Gurry

We don't have a great reaction to that. But I think one thing that we can do better at – and Jamahl's team is doing tremendous work in this space – is they go into a community and essentially live in that community and be part of that community for two to three years leading up to a project actually hitting the ground.

Once you’ve got good communication going between the landholder and the proponent that's impacting their property, you're able to get things done.
Poor communication, poor messaging is where we get these breakdowns, and that's where we get legal action, political action, media outbreaks and all that sort of stuff.
So I think communication is the key.

Rebecca Kent

Larry, I'll come to you in just a second, but I just want to go to Jamahl quickly about what Will was saying there about you embedding yourselves in those communities.

What does that look like?

Jamahl Waddington 
If we're working on these projects and we have any chance of developing any sort of credibility in the community, we have to understand the community, we have to understand the properties, we have to understand the landowners, and we have to appreciate the impact this is going to have on them. Because in a lot of cases, it’s going to have a large impact. This is not only during construction, but once the thing is built and operational. It has a big impact on people.
So the only way to understand that is to engage yourself and understand the issues and really and really get into it.
We typically say to our teams, who are generally from a rural background as well and are people who understand farming and understand community issues, they should know every inch of the area they're working in. They should know where every gate is, they should know every landowner and how they operate their property when they're there, when they're not there, when they’re lambing, when they’re not lambing, so that we can really appreciate the impact this thing going to have on them and put in place plans. Obviously, compensation is a big part of that, but also develop plans, property impact mitigation plans for example, that really minimise the impact that construction will have on a landowner and their operations.

Rebecca Kent 
Thanks Jamahl. Larry, what are some successful mediation strategies that you have put in place in the past in your long history in this space?

Larry Susskind 
Well, I agree completely with Will and Jamal that empathy and local knowledge and communication are absolutely essential if you're going to try to come in from outside and work something out.
The problem in the States now is there's, as Will said much earlier in our conversation, this pressure to go fast. There's really a different desire in terms of pace to get this done.
And the problem then is that the people who are trying to go fast are not putting in the time to do the kinds of things that Jamahl just described.

They are hiring consultants who are doing an air photo interpretation. They're not even going to the place, let alone embedding themselves in the place. They don't empathise at all in the way that Jamahl described for what's going to happen.
And we now have this crash going between people who want to go fast, faster than ever, and people are saying ‘Oh no, I have some rights here and I'm being treated unfairly.’ The reaction if you think you're being treated unfairly is to delay, to take advantage of every opportunity you can for another hearing.
What I'm going to suggest as briefly as I can, is a way of proceeding that comes from other domains that we know something about, like international treaty negotiation.
Developers are open to some suggestions along these lines that they were never open to before because the resistance is now so great that they're almost willing to try anything.

So when I say you're going to have to get in touch with people way sooner and you're going to have to choose a representative set of stakeholders in this area, and you're going to have to, in those categories, let people name their own representatives, and you're going to have to set up an informal – not a government-run – an informal dialogue.
And I would argue, if you're going to have 30 people at a table every week for some period of time and they're all angry about having their interest met, you need a mediator. You need somebody who knows how to facilitate that conversation.
And then I say, which sounds unbelievable to the developer, is, ‘And I think you have to commit to coming as close to consensus as you can before you even start the process so that people know they have the equivalent of a veto’.

If we get an agreement before anything happens, that proposal will go to various public bodies and they'll know that if the developer does this, then all the groups have come as close as possible to agreeing what they're going to do.
My argument is if these projects are beneficial, then the gains to the gainers should substantially outweigh whatever the real costs or losses are to the losers, and you should tax some of the gain and use it to compensate the losers in terms that they define.

I'm arguing that if we go slowly at the outset, we can go faster because we can within three months instead of three years get a negotiated agreement if everyone knows, everyone's there working to get a consensus agreement and there's a neutral party managing it.

And nobody's playing to the press because there's no press. It's not open. It's not a political debate. It's a problem-solving session and either you can work out an agreement or you can't, so that's mediated siting.

Rebecca Kent
We've heard about engagement and communication being pretty crucial for developers, Will. What about for landowners themselves? How can you suggest they approach these negotiations? What sort of mindset do you suggest they adopt in entering these negotiations with developers?

Will Gurry
When I'm talking to landholders I’m always very quick to suggest they engage their own representation. So that's legal and valuation.
That is not because I want to have a barney with another valuer on the other side.
It's because it just goes a long way to peace of mind.

As valuers in Australia, we are absolutely required to operate under the legislation.
The legislation requires us to be neutral. Or in fact, err in favour of the landholder.
So if we've got a choice in the calculation to round up and down or take one view or the other, the legislation requires that we favour the landholder in a compensation calculation.
To be honest, in Australia, landholders are typically quite slow to get their own representation legally and in valuation, and I find that interesting because it's not a cost to them. The cost is covered under legislation. It's reimbursable to a reasonable amount.
And I'm not at all saying that the landowner can't represent themselves or can't understand their own position. It's more that you're employing professionals that have the skills in negotiation, they have the skills in legislation, in understanding the legislation and they have the experience. So if it's only so that you can sleep better at night, go and get your own representation. That’s probably my first advice to landholders.
My second advice to landholders is disengagement generally gets you nowhere. It's really common that we see people lock gates. Always keep the communication going, even if your objection is as strong as it possibly could be, that is, ‘You will never have this powerline’. Even if you're that way minded, as in, ‘You'll never get this project up, you'll never have it on my land’. That's fine. But disconnecting from communication gets us nowhere on both sides.

Rebecca Kent
Jamahl, what are some of the questions that landowners should ask of an acquiring authority or renewables developer? Is it, for example, ‘What does remediation of my land look like after a lease?’ What if the energy developer’s business fails? What happens to the infrastructure on my property – the long-term viability?’ What are some key things that landowners should discuss or get their legal representation to discuss?

Jamahl Waddington

Yes, those things are obviously important and I guess things have changed a little bit. In the past, those disturbance elements we would say to landowners, ‘Let's agree some compensation up front, but let's see what the disturbance elements are and let's quantify those after afterwards, let's tie those up at the back end.
Obviously there's been a big shift now in mindset and landowners want to agree all of those things up front.
So, ‘Let's try and quantify all those potential disturbance factors up front, let's see what that looks like and let's develop a remediation plan now. Tell me how you're going to re-sow the pastures. What you are you going to re-sow with? Let's agree the mix. How are you going to affect the local roads?’
All those types of things landowners want to know as much as they can up front and get those things agreed.

So, ‘How much are we going to get?’ Obviously. ‘When are we going to get that money? What's the likelihood we're going to get that money? What can I do under the easement? What can't I do?’ Is that absolutely clear? ‘Can I still farm under a powerline? Can I not farm under a powerline? How high does my equipment need to be? Can I do that without a permit? With a permit?’

We can try and embed a lot of those things into an easement agreement or a lease agreement or whatever it may be. We are getting more open to changing terms and conditions within agreements.

Larry Susskind 
I work on negotiations between countries about shared waters like the Nile. Everybody put all the effort on writing the original agreement: Who's going to get how much of this water, and they fought and they fought and they fought and then they got an agreement.
There's not as much water in the river anymore, but there's nothing you can do.
Everyone's taken their volume out because that's what it said in the agreement.

Conditions change. It's possible to make contingent agreements. Let's negotiate it out what we think is most likely, and then let's have appendix A, B and c and talk about, ‘if this happened – I don't think it's going to happen, but if it happened – what would the rules be if this happened? What would the contingent payments be?’
I think it's a good idea to build into an agreement, a lingering commitment where on a certain date the parties would meet and if everything was fine, they'd have a beer and that'll be it. But if they needed an occasion to reflect on what's going, I think dispute resolution mechanism like that and contingent agreements solve a lot of problems that might come up later. Because I think weird things are going to happen.
You know, nobody ever imagined there'd be less water in the river for hundreds of thousands of years. There was always the same amount of rainfall, but climate change changed that and all these 700 agreements about shared waters, they don't have any reconsideration except for 50 years later when we'll meet and talk about it.

Rebecca Kent
Fascinating. Thank you.
And I think that's a great note to end on actually: some flexibility, contingencies, being open minded, don't lock the gate, have a conversation. All those things.
Thanks so much to the three of you for shedding light on this topic.
Jamahl, Will and Larry. Appreciate your time.

All
Thank you.