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Wind power

Course: Farm and renewable energy | Last Updates: 14th October 2015

 
Mark Newton
Head of renewables sector Fisher German
Biography >>
FADS2

The power can be used to reduce on-site energy bills while surplus electricity can be sold to the grid. A Feed-in Tariffs (FiTs) subsidy will be paid for 20 years to the turbine’s owner for every kilowatt hour generated. Any electricity not used on site can be exported to the grid to generate additional income, either at a set rate paid by the government or, for a slightly higher market rate if there is sufficient volume to command a market rate.  

FiTs payments are guaranteed for 20 years and linked to annual inflation rate reviews. While FiTs rates for an installation are guaranteed for the life of the scheme, as more capacity is installed, the rates for each new tranche of support are reducing.

While the visual impact of a turbine, or a number of turbines, on a farm can be significant, the project’s footprint is significantly smaller than that of other renewable technologies such as a ground-mounted solar photovoltaic array. This leaves more room for productive agriculture to take place next to the turbines.

However, a number of key criteria must be met for a wind turbine to be a suitable option for the UK’s landowners.

Turbine sizes

Three turbines sizes are commonly purchased by UK farmers who want to sell surplus electricity. The smallest is 50-100kW, meaning that it can produce 50-100 units (kWh’s) of electricity in an hour. The next size up is a 225-250kW and the larger of the three is 500kW, which is normally a down-rated 800-900kW turbine, so pro-rata, with the much bigger blades, you get up to 50% more output.

It is important to bear in mind that the classification of the turbine may differ depending on where it is manufactured. Canadian and American turbines are classified by performance in an average wind speed, not the maximum, meaning a 50kW turbine classification in windy conditions could actually produce 70-90kW. British turbines are classified by their output at maximum wind speeds.

Checking grid capacity 

The main constraint with most renewable projects is getting a grid connection – as there is no spare capacity on the line to handle the electricity that will be generated by the turbine. One of the first steps in any renewable energy project is to contact the local Distribution Network Operator (DNO) – to apply to connect into the network. This process will also uncover the cost of any connection.

There are two routes to this – a budget quote is quickest but does not produce an accurate quotation and because it is a desk-based exercise will not uncover any constraints on or near the site. We almost always now recommend going straight to the second stage of this process to submit a G59 application.

A series of checks on the infrastructure will take place and the G59 application response will usually come back within three months. Any quotes provided by the DNO for upgrade work will be a mixture of non-contestable work (for example a fixed price for work which only the DNO or its contractors can carry out) such as upgrading the substation, and contestable work, such as laying cables from the turbine to the grid connection, which can be done by a farmer or contractor at a reduced cost.

Selecting a turbine

A decision on which size turbine to invest in depends on what the electricity is going to be used for, the size of the grid connection available,  how much the farmer wants to spend, and what size of turbine the local council will permit.

Farmers should work out exactly what their annual electricity use is and what the peak amount is they may need in an hour. If the farm is in livestock production, which has a year-round constant low electricity demand, a 50kW will normally cover the day-to-day peaks in farm demand. On a windy day when no power is being used on farm, the electricity can be sold to the grid but until large-scale battery storage comes in, it cannot yet be effectively stored for future use. Arable farmers who have large grain and vegetable storage buildings, which have large grain drying motors and want to sell large volumes of electricity to the grid will need a turbine that’s larger than 50kW, and the most profitable is the 500kW turbine.

Smaller turbines of 5, 10 or 15kWs are no longer viable with the reduced wind generation FiTs payments, unless it is a high wind speed site. It is these smaller turbines where most of the troubles have been, as some of them have mechanically struggled in the UK's blustery wind regime.

Wind turbines: The 10 main constraints

  1. Grid connection – if a turbine is more than 15kW in size it needs to go into a three-phase 11kv line. Some hill farms and some older premises that haven’t been upgraded are still single phase, and they can only use a turbine of 15kW or less.
  2. Wind speed – speeds over 6m/sec at the turbine hub height are essential. This will vary greatly depending on the farm’s location. In the Midlands an average speed will be 6-6.5m/sec. In the north of Scotland it will be up to 8-8.5m/sec. A one-second increase in wind speed results in a four-fold increase in power output. An ideal site is near the top of a hill with no buildings or trees in the way to cause turbulence, the hub of the turbine needs to be a minimum of 30m above ground level, with an open aspect to the prevailing wind from the south west. The higher the turbine, the greater the wind speed and output, but the planners want turbines as low as possible.
  3. Residential property – a turbine should be 300-800m away from any residential houses because of the noise, and this will depend on the size and model of the turbine. It shouldn’t produce any more than 35dB at the nearest residence, although if the background noise levels are high this noise limit can be increased.
  4. Civil aviation – more than half of wind farm developments are subject to objections from the aviation sector, as they can cause interference with the airport radar screens. The turbine needs to be further than 50km from a civil airport if there is a clear line of sight from the turbine to the radar. Software mitigation can be introduced to the radar operation at the airport but this can be expensive, and is normally only applicable for larger wind farms.
  5. MoD – similarly, turbines must be at least 50km away from a military airport with a primary radar. The MoD will also look at line of sight and could object if it appears on radar. The height of the turbine can be reduced, or the structure can be re-sited to reduce the likelihood of it appearing on the radar.
  6. Ecology designation – A Phase 1 Habitat Survey carried out which will identify any ecological issues. Bats can be an issue and if farmers have woodland or hedgerows then turbines must keep at least 50m away. Great crested newts may also need to be surveyed on sites with ponds within 500m. Bird surveys are sometimes required and these can cost £15,000/year , and can take up to 2 years.
  7. Microwave links – if the turbine intersects the microwave links between two mobile phone masts, or other fixed link telecommunications, the application will be refused. Again this needs to be checked early on and the turbine relocated, normally allowing about 150m separation from the link.
  8. Historic assets – if the project is visible from a listed building, or within 5km, this can be an issue at the planning stage. Previously if a turbine was further away than 1km then the renewable energy deemed the project more important than the historic asset, but recent legal cases have increased the importance of protecting historic assets.
  9. Landscape designation – National Parks are generally out of bounds for wind turbines, although small projects have been allowed.  Other designated areas such as Sites of Special Scientific Interest, Area of Outstanding Natural Beauty etc are out of bounds for wind turbine developments.
  10. Pylons, roads and rights of way– siting the turbine is important, roads and footpaths must be the height of the turbine plus 10% distant. So for example with a tip height of 80m all roads and footpaths must be at least 88m away. Bridleways usually require 200m clearance and pylons require the equivalent of three turbine rotor diameters separation distance.

Overcoming the planning hurdle

Early applications for wind farms went through without too much resistance from residents affected by the scheme, but complaints and objections are now more likely and action groups are often well-resourced and organised. Engaging with the public from the outset to allay fears over visual impact, noise and the perceived effect on property values is crucial and could save a lot of work at the planning stage. A pre-consultation with the locals in the village hall is now mandatory before submitting a planning application. This will include writing letters to all local residents and holding a public meeting at which farmers or their professional advisers have the opportunity to explain how much of the renewable electricity being generated will be used on farm and how the turbine will look against the landscape. If there is a lot of opposition then be prepared to negotiate at this stage – there may be an equally suitable site elsewhere on the farm which has less visual impact.

  • Typical returns (based on FiTs year 2014-15, and 6m/sec wind speed. FiTs rates fell by 10% on 1 April 2015): An 85kw turbine would cost approximately £260,000 to install and will deliver an average gross income from the sale of electricity and the FiTs of £40,000-£50,000/year.
  • A 225kw turbine costs approximately £650,000 to install and will deliver an average gross income of £90,000-£110,000/year.
  • A 500kW turbine would cost £1.2-£1.3m to install and will deliver an average gross income of £250,000-£300,000/year.

These figures assume all power generated is exported. The annual running costs of service and maintenance can be assumed to account for about 10-15% of the gross income, and should be deducted from these figures above to produce a net income. Tax, depreciation and finance charges have not been shown as they are different for every project.

Two key questions to ask a turbine provider

1. What is my delivery date for my turbine? 

Farmers can pre-accredit their wind project provided they have planning permission and paid for grid connection so they can lock-in to the FiTs before it digresses further, but this pre-accreditation only lasts for 12 months and some turbine providers may take longer to deliver the turbine. There can also be issues with getting the DNO to connect the project within the 12 month time limit 

2. What warranties can you offer me? 

Warranties are an important peace-of-mind protection against any breakdowns. Most providers offer between five and 10 years but some will go to 15 years.

Renting out land to a third party

Farmers may not have the financial capacity to invest in a turbine so an alternative option is to have a company rent land to place a turbine on. In such an agreement, all the costs of the project are undertaken by the third party and in return the landowner will typically receive between eight and 10% of the gross income earned from the turbine. This equates to about £30,000/year for a 500kW turbine. There are tax disadvantages in letting out land for a turbine (see “What about tax”, below) and the landowner is potentially losing out on what is a very large additional non-agricultural income.

What about tax?

The high capital costs of wind projects and the potentially high returns mean that getting the correct structure for tax and for the family is important.

The main issues involve Inheritance (IHT), Capital Gains (CGT) and Income taxes. Whether the project will be owned or leased has huge tax implications. If owned, who will own it and how – for example in a company or personally, must be carefully considered.

A rented turbine site will in general attract much higher IHT charges while a carefully set-up owned site currently will be eligible for relief from IHT.

If a farmer builds the project himself, it will be eligible for Capital Allowances in the form of the Annual Investment Allowance (AIA) at £500,000 until January 2016. So the capital cost of building it can be set against their farm income.

If the project is returning typically 15%, this additional tax reduction could return closer to 25%. This is dependent on the farmer’s tax rate and whether any of the AIA has already been used.

Up to £40,000 a year of the profit from an owned site can be invested in a pension, with tax relief. This does not apply for income from a turbine site which is leased out as it is not "earned" income.

The turbine itself cannot not be put into a pension fund as pension funds should not trade

For owned turbines a company structure should be considered as corporation tax rates are normally lower than personal tax rates. Good independent accountancy advice before starting a renewables project is advisable.

Table of approximate costs and returns (based on 2014-15 FiTs year rate)

Turbine Size

85kW

225kW

500kW

Estimated Total Price

£260,000

£650,000

£1,300,000

Estimated Annual kWh @ 6m/sec

230,000

550,000

1,600,000

Estimated Annual Gross Income

£47,000

£98,000

£287,000

Payback (Years)

5.5

6.6

4.5

This table assumes all power generated is exported. It is also before annual running costs, which usually account for 10-15% of gross income. The greater the proportion of power used on site, the better the financial performance, as the saving made on using each unit of generated power are greater than the income that can be earned for exporting that power.

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