Caution urged over energy compensation

09-06-2010 | Jackie Harrigan

The windfarm goldrush is coming to an end, but other electricity infrastructure developments will go on - and may affect farmers.

New Zealand has one of the best wind resources in the world, says valuer Stuart McCoshim from Masterton's Baker and Associates, with 45-50% turbine operating efficiency (compared with 25-30% in Europe using the same machines).

Although McCoshim says the national demand for energy is growing by 1-1.5% a year and there is a need for additional generation capacity, many wind farms are in the consenting process at the moment.

"A lot of future demand is already secured, with the best sites earmarked for development, so that phase of the industry is coming to an end," he says.

For those farmers facing interest in their land from power companies for wind generation or electricity infrastructure, McCoshim and his colleague Fergus Rutherford urge caution.

Contracts and agreements have moved on massively in the past five years, the pair say, and it is important that farmers seek specialist advice to make sure they are receiving market rates for compensation.

McCoshim cited a South Island case where a client's farming neighbour with a similar number of proposed turbines as his client took no advice and was expecting to receive a royalty of $59,000 a year. His client sought advice from Baker and Associates who negotiated an expected annual royalty of $149,000 a year - a difference of $2.2 million over the 25-year period of the wind farm agreement.

Rutherford also works as a valuer at Baker and Associates, and is involved in compensation assessments for transmission lines on farms. A lot of infrastructure work will be done in the next 20 years, putting in new lines as well as upgrading and maintaining existing lines, he says.

"There has been practically no investment for 30-50 years so the next couple of decades are going to be busy."

In the past, farmers have seen it as their "civic duty, for the good of the country" to host transmission lines, but power transmission is a commercial business, McCoshim says, so farmers are entitled to be paid market rates to host pylons and transmission lines, much as they would be if they had cell-phone towers or other structures erected and maintained on their land.

The three main areas where farmers would be affected are construction of new lines, upgrade to existing lines, and maintenance of existing lines.

The lines company has the right to enter a farmer's property to upgrade, maintain or repair existing lines, but if there is any injurious effect to the property by an upgrade to a line then the company is required to negotiate access or purchase an easement through the property, which will include compensation to the landowner.

Injurious effect is any negative effect on the value of the land resulting from the work. This could include encroachment (with the upgraded pylons having a bigger footprint on the land or airspace), a negative amenity effect (the visual effect of a large foreign structure), the stigma attached to health consequences of large power pylons, or disturbance to the land as the work is being done or disturbance to normal farm practice, eg topdressing, irrigation.

An easement is an interest in the property, registered against the title and exists for all time. Compensation paid for this easement involves calculation of the value of the land and any injurious affect to adjoining land.

McCoshim and Rutherford say don't sign anything from a lines company until a specialist valuer has been consulted.

This advice is usually at no cost to the landowner because the lines company generally meets the reasonable fees associated with the valuation and negotiation of the easement.

In the opinion of McCoshim and Rutherford, the compensation provisions outlined in the Public Works Act 1981 should be relevant only when land is being taken for public works under compulsory acquisition.

In the case of compensation for property rights given up for a new easement and the subsequent injurious effects to the property, they say the rights have commercial worth which should be paid for, rather than using the outdated model of assessing the value of the property before and after the works and compensating the farmer with the difference. This is extremely difficult and highly subjective in relation to the acquisition of powerline easements, Rutherford says.

An increasing number of transmission lines are being built and evidence of the market value for easement rights without the Public Works Act is being established.

It is this sales evidence which reflects a willing buyer/willing
seller contract that should form the basis for assessing the value of easements.

"Why should any landowner be forced to give up a property right only amounting to the devaluation of his land and not acquire a commercial premium that would be associated with the sale of any other land," Rutherford says.

Both agree it is in farmers' best interests to join together in a group to negotiate with the power company to ensure everyone is getting the best deal.

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