With the ending of subsidy regimes for solar generation, there has been renewed interest in subsidy-free, large scale solar sites. Because of their size, these sites often straddle boundaries between several different landowners.
Depending on the structure of a scheme, this can lead to potentially complicated lease arrangements for the panels, substations, export cables and access requirements.
Landowners (and their professional advisers) should approach any lease agreement with care: it is too easy to generate unnecessary conflict between the parties which can then lead to a dispute, souring both a good opportunity and neighbourly relations.
Here are some of the key points to watch out for:
- Who owns the land. Knowing who owns the land means that the right entities will be involved in the negotiations and the resulting documentation, and the right accounting for revenue. Understanding the land ownership structure is central to putting together, and negotiating, the structure of the overall deal. Where several, separate landowners are involved, it is worth considering either a collaboration agreement or a joint venture agreement (JV) between them which then contracts with the solar developer. It may also be important to obtain consent from a bank or other 3rd party.
- Existing businesses. Although solar developments go up quite quickly, other business entities could be disrupted during the building phase. How will that disruption, and health and safety requirements, be dealt with to minimise loss of income etc.? Is there any way of involving an existing business in the development to help negate any disruption? For example, would they be able to buy or obtain power from the renewable scheme in order to maximise any marketing opportunities by boosting their green credentials? Understanding the individual business structures involved will help to mitigate any operational, cross contamination, or regulatory risks.
- Taxation. Often overlooked, tax issues must be considered before the deal is finalised. A renewable energy development can have significant impact on the income, capital gains, rates, and inheritance tax position of a business. Early consideration is an absolute must in order to ensure that the tax impacts are understood and appropriately funded either through reserves or cash flow forecasts.
- Tenants. Speak to your tenants at the earliest opportunity. The later you leave it, especially with an AHA tenant, the more expensive and difficult it will be to come to a mutual agreement. Don’t assume that your tenant will be happy to rubber stamp your plans.
- Energy Storage. Energy storage technology is coming on in leaps and bounds and it is probable that, at some point, it may become commercially sensible to retrofit energy storage to renewable generation apparatus. Therefore you should consider how storage should be dealt with in any agreements – although beware the different attributes of generation versus storage.
- Hedges. Some solar leases can contain onerous clauses relating to hedgerow maintenance including, in some cases, hedge removal. Make sure you are not signing up to obligations that put you in breach with the hedgerow regulations and the attendant penalties.
A renewable energy development can make perfect sense on a rural land holding, generating an additional income stream. But before signing up, landowners need to take advice from a suitably experienced surveyor, accountant and lawyer as early as possible to ensure that the scheme is a success rather than becoming a white elephant - or worse.