Get to grips with the large-scale solar market

Landowners are often tempted to take the first deal offered by solar developers to lease their land, but this can result in the opportunity being underlet by hundreds of pounds an acre.

In other areas of their business farmers are often the most cost savvy, very rarely accepting the first price for feed or livestock, and this is the attitude needed when negotiating a deal to develop a solar farm on their land.

While the viability of solar development has been questioned following the reduction of government support through the Feed-in Tariffs, the reduction in panel prices and development costs has brought more measured activity back to the large-scale market that is now generally supported by the Renewable Obligation Certificate (ROC) framework.

What influences rents?

Grid connection costs, solar levels, site development costs, component prices, likely on-site system losses, planning issues, and predicted wholesale electricity prices all affect the rent a site can support.

Even though ROC support levels are set to fall in 2014, competition for sites remains strong and the available rents for solar farms are higher relative to agricultural rents. Rents are site-specific and range from £500/acre to more than £1,000/acre.

What’s the market place like?

The market is constantly changing and it is essential that farmers and rural landowners understand where their site fits within the market

There are a variety of operators in the market ranging from small developers who will simply acquire rights to a site and then sell on to a third party once (or indeed before) planning consent is obtained, to businesses who, having obtained consent will, fund, construct and manage the site for the length of the lease.

Ensuring your site is taken on by the right developer is the key to maximising rental return and ensuring the scheme actually happens. As a general principle, dealing directly with the ultimate long-term operator of the site is likely to produce the best result.

Key points

  • Choose the right developer for your site, one that has the experience and financial backing to develop a scheme of this size
  • Take into account the upcoming changes to the ROC support and how these may affect your site
  • Understand how a solar farm fits in with the wider objectives of your farming/estate business

Getting the best returns

While agreeing the best financial terms for the lease agreement is important, it is also essential to ascertain that a developer has the funding in place for the development and construction of the site, and that they can deliver.

A developer also needs to possess the knowledge and experience to design a scheme that is as efficient as possible and in turn ensure the best possible return of value from the land to the farmer or landowner.

Most large-scale solar farm developments are based on 25-year lease agreements, which means landowners must get a deal that not only delivers the best financial returns but is also compatible with their wider business objectives over the long term. Once the option is agreed, it cannot usually be renegotiated.

Leases are generally RPI-linked but, to ensure maximum returns, get a lease linked to the solar development’s income (ROC payments and exported electricity).

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