Solar lease schemes: what you need to ask

Numerous solar developers are looking to sign landowners up for new schemes, but many projects may never get off the ground. David Grindley of Savills’ energy team explains what you need to ask before signing on the dotted line.

When a would-be solar developer comes knocking at your door, don’t be dazzled by the size of the chequebook.

Never be afraid to ask searching questions – it pays to make sure you have chosen the right partner so the scheme stands the best chance of reaching fruition.

There is a limit above which the financial model will not work, so while it may be tempting to enter into a deal based on the highest rental offer, never do so without finding out about the strength of the developer’s covenant. Find out how long the company has been in business and what its track record is.

Check the developer has screened the site properly at a practical level, such as assessing vehicular access and proximity to a grid connection.

When the nearest point of connection to the grid is some distance away or situated on somebody else’s land, this usually makes the development unviable.

It’s also important to consider whether or not there are any heritage designations on site or if the site is adjacent to some listed buildings, any of which could limit the likelihood of gaining planning consent.

The Solar Trade Association recently published its “10 Commitments” best practice guidance for solar developers, which states solar schemes should avoid conflict with food production. As a result, land grade is now a major consideration.

Company check-up

Ask the developer for evidence of previous successful schemes, and find out if you can visit the development and speak to the landowner. Ask about failed schemes and why they failed.

It is worth asking the developer what level of capital they have available for the proposed project. When all the associated fees are accounted for, it can easily cost £100,000-£150,000 to fund a single application for a larger-scale solar farm.

When planning permission is granted, find out what your developer intends to do with the site. It is common for a developer to sell on the planning consent to a fund to finance the build costs, which on average are in excess of £1m for every MW.

Ask your developer if the firm has existing arrangements with a fund or if it is planning to go out to tender. A tender can be time-consuming because of the due diligence required to complete the process, which can delay the build by some months.

Find out if the developer plans to stay on board to install and thereafter maintain the site. When the company plans to exit from the scheme, there could be implications for you. Ensure a clear and transparent framework is in place.

Ask the developer about its relationship with the distribution network operators (DNOs) and whether it has dealt with a particular DNO in the past. Having a good relationship with DNOs is crucial towards facilitating the grid connection process.

Scrutinise the timeline

In order for the developer to qualify for the highest level of payment – 1.6 ROCs under the government’s Renewables Obligation Certificate scheme – and in turn the highest level of rental, sites must be up and running and producing electricity by 31 March 2014. One ROC equates to 1MWh of electricity produced. The actual market price for one ROC is £44/MWh.

Taking into account build time, the planning process and the many reports that need to be produced for a planning application, the timescale is now very tight. Ensure your developer has all the necessary experts and financial strength in place to move quickly.

There is currently a 20-week lead time for some equipment, so to complete a scheme by 31 March next year, some parts will need to be ordered ahead of the planning decision. This means a full site appraisal of all the potential risks to a proposed PV development is essential to minimise the risk of planning being rejected.

If you have already entered into an exclusivity deal, but have seen no progress so far, consider whether you are able to break your contract for non-performance. Equally, check whether your exclusivity has come to an end.

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