When considering setting up a solar farm, one of the most important factors a client should give thought to is who is going to undertake the project?
A developer versed in energy projects who has been through the rigmarole of obtaining a grid connection, planning permission, surveying a prospective site and procuring the necessary materials and equipment will be well-positioned to successfully take a development from paperwork through to construction and operation.
It would be sensible to engage a land agent and/or an energy consultant early on too. They will bridge the gap between client and developer, advising a client on the commerciality of a project and often negotiating the financial side of things. We can also assist at this stage of the process and beyond, so do speak to us. We can’t advise you on the commerciality, but we can point you in the direction of those who can.
What are the key legal challenges when considering creating a solar farm?
It is important to consider who owns the land upon which the site is to be built. The legal title for a number of these sites is complex due to agricultural land not always being registered and often farmed in tenancies or farming partnerships. It is important for the lawyer to check these title documents at an early stage, clarifying whose ownership the land is in (often with agricultural land in parents or grandparents names) and dealing with transfers if necessary. We also need to ensure that there are no unexpected covenants or restrictions which can bring a project to a halt in its infancy.
Developers will also often require appropriate rights are able to be granted for the entire length of the cable route, which can often be lengthy – the longest we have dealt with is 14km. The planning and grid process will be undertaken by the Developer, the benefit to the community and now shared community ownership need to be factored in – an important hurdle to surmount. The documents to enable a project to reach this stage are:
- (Preferably) Heads of terms. We can assist with the negotiation of these. Agreed terms enable both parties to be clear on what they are getting from the deal, facilitating a quicker negotiation of the documents that follow.
- The option
- The lease
The negotiation of the option agreement and the lease form the bulk of the work required on behalf of the lawyers. Once exchanged, the option agreement will afford the developer rights to access the site, to undertake surveys and viability studies. The developer will also apply for and (hopefully) obtain planning permission for the project at this stage. Option agreements are time limited, so the developer will only have a finite amount of time to exercise its option to take a lease of the site, a copy of which is usually annexed to the option agreement.
At this point, work usually begins on bringing the project to fruition. Installation of the equipment takes place and rent becomes payable.
A special purpose vehicle will usually be set up by the developer to run the development, and clients will need to think about whether bank consent needs to be obtained if the land is charged. Banks will hold up the process, sometimes by instructing a valuer, and early contact with them is vital. This should take place before the option agreement is exchanged between the parties.
How have the experiences of previous solar farms, in the UK and abroad, affected the way in which they are set up?
Large scale commercial UK solar sites have been in operation for around twelve years. The form of lease used has developed considerably since the early days of renewable energy projects, which my firm dealt with, and this is driven in part by developer’s funder’s requirements. The leases that are being drawn up now are drafted in such a way as to enable the funder to have step-in rights and direct agreements with the developer. They now also deal more clearly with any breaches to the lease that may occur. This wasn’t the case previously, and is a positive development for landowner clients.
What financing and costs arrangements are typical in this area? Why is this good for clients?
Developer’s funding for projects can come from a variety of sources. They can use their own personal funds (unusual, but not to be unexpected, especially in the case of large-scale developers), obtain project finance or use bank debt. Developers can also be backed by investment/pension funds, asset finance, leasing, private investors and corporate investors.
If a developer has obtained funding for the development, this often offers an added layer of protection for landowner clients who are naturally concerned about their land and its condition, especially once it is occupied by a special purpose vehicle company incorporated by a developer (and often without assets) specifically for that project. The protection comes in the form of a funder’s right of step in, which it can exercise to essentially operate the development on the developer’s behalf, should the developer fail to do so if, for example, it has breached its covenants in the lease and failed to remedy that breach.
How have planning disputes and challenges been dealt with, and what happens if the developer can’t obtain planning permission?
Planning is an easier process for solar and battery than for other renewable technologies, although that does not mean that others should be discounted, far from it. Solar farms do have a much lower visual impact than wind farms, for example, although complaints about the ‘industrialisation of the countryside’ are now becoming more commonplace. Also, there is no noise element with a solar farm, and for these reasons they can be sited much closer to residential buildings. Provided that good screening is put in place, the environmental impact of a solar farm, for example, is very low, and for that reason an environmental impact assessment is not always considered necessary.
The best planning applications are those where the local community has been fully consulted and involved. The most common challenge is visual impact, which can be dealt with by ensuring good screening is established. Visiting existing solar parks and battery storage facilities to observe how this issue has been dealt with on other sites is advisable.
Commercial developers have usually been through the planning process a number of times before and will understand the prospects of a successful planning application prior to entering into the option agreement, which should offer reassurance to landowner clients. In our experience, a developer will seldom enter into an option agreement if it is unlikely to obtain planning. This would result in a waste of resources, time and (maybe most importantly) money on the developer’s part. Ultimately, if unable to obtain planning permission, the developer should not be entitled to exercise their option to take a lease of the land, which should be returned to the landowner in the condition it was taken once the option period has elapsed.
We can build landowner protections into the documents to protect client’s positions even further, hence it is crucial to obtain specialist legal advice before committing to grant an option for lease to a developer.
How can you find out more?
We specialise in advising landowner clients nationally, with a proven track record of negotiating and completing the documents required to bring renewable energy projects to fruition.
If you require any assistance with a solar farm please feel free to contact our Energy Team.