Get to grips with the legal aspects of solar power

Farmers considering getting involved with large-scale solar power schemes need to think carefully about what’s in store. Paul Spackman gets some expert advice

The introduction of the Feed-in Tariff last April has sparked a surge of interest in solar power and the first UK “solar park” has just gained planning permission in Cornwall.

A number of other large-scale schemes are in the pipeline and farmers and landowners are increasingly being approached by companies wanting to put solar panels on their land.

While the offers of index-linked payments guaranteed for 25 years may seem attractive, there are plenty of contractual aspects to consider before signing on the dotted line – below are some of them. In all cases rental agreements with developers need to be carefully negotiated and landowners are advised to seek professional advice from the outset.

Leases

Solar park leases generally run for 25 years from the start of electricity generation, as this is the period covered by the Feed-in Tariff for solar. Many developers may be eager to get projects established before FiTs are reviewed in 2013.

“Even though high rents are attractive, farmers need to be happy that they are entering into a long-term arrangement,” advises John Myers, from Lancashire-based solicitors Oglethorpe Sturton & Gillibrand.

“Twenty-five years is a long time to rent out a piece of land and farmers should bear in mind any other options that may evolve over time.”

He advises farmers to make sure land use is not unnecessarily restricted while planning is being obtained or during the rental period. “Try to rent out land that is least valuable and/or productive to you – solar parks don’t need to just take up square blocks of land.”

It’s also worth checking the implications for stewardship schemes, bank mortgage borrowing, future development on neighbouring land and single payment entitlement (see later). Farmers should also make sure they get the land back in a farmable state at the end of the rental period.

There are two common types of deal being offered by developers, namely exclusivity deals and option agreements, says Priscilla Hall from law firm Clarke Willmott.

Exclusivity deals effectively tie the client in to one developer for a certain period while that company investigates whether it’s worth progressing the project. Option agreements give more flexibility and allow a developer to lease the land once planning permission has been obtained, she explains

“Exclusivity deals prevent you from talking to anyone else and we’d advise any farmer or landowner not to sign anything until they’ve got an agent involved to negotiate the deal on their behalf,” Ms Hall says.

Rent

Rents vary considerably, depending on individual site circumstances (light intensity, grid connection, etc). In some cases there may be scope to obtain a share of the revenues from electricity generated on the site alongside a rental income, especially where there are high solar radiation levels.

Most rental agreements are adjusted for inflation, but it is important to clarify exactly how the rent is structured, how often it is reviewed and what basis it is agreed on.

Agent Carter Jonas says typical offers for sites of 10-15ha range from £2000 to £4500/ha per year (RPI linked) as a ground rent, payable following the gaining of planning consent and final commissioning of the project, for a period of 25 years.

It says returns for rooftop schemes are a lot lower due to smaller economies of scale. The main rental market is for large roof areas of more than 1000sqm, which can attract annual rents of £1-1.50/sqm.

It says many developers looking to enter the UK market are linked with European Engineer Procure and Construct companies that wish to acquire sites, build and sell on as part of a larger portfolio to a variety of investors, including infrastructure and pension funds. Be sure to check who you are dealing with before signing anything (see panel).

It may be possible to negotiate a supply of electricity to your own property at a reduced rate or even free as part of the rental agreement.

Planning

The cost of a planning application for a 5MW solar farm has been estimated at £60-70,000, but this will normally be picked up by the developer.

Mr Myers says initial feedback from local planners suggests solar parks may be viewed more favourably than wind farms. That is largely because the panels stand no more than 2.5m off the ground making them less intrusive, and they make no noise.

However, no developer can guarantee planning permission will be granted. Because just one solar park has been given the go-ahead so far in the UK (in a disused quarry), it is unclear how planning authorities will react to any surge of applications, Ms Hall says.

If planning is refused, generally the developer will pay to resubmit an application, but she warns landowners that some may walk away from a project if the problems cannot be overcome.

Cost

Installation costs for large solar farms run into millions of pounds, but these are usually picked up by the developer. Developers also tend to cover legal, surveying and other professional fees incurred during the early stages. Landowners may be asked to pay a share of costs if they enter into a form of joint venture agreement with the developer.

“The levels of rent farmers should expect to receive are very high and the responsibility for managing the development should lie wholly with the developer. As investment costs currently run at over three million euros per mega watt of equipment, so they should,” says Mr Myers.

Farmers should ensure they incur no costs at all, even during the initial planning and setup, he adds.

Grid connection can often “make or break” a project, says George Matts from Samuel Rose. “It can be particularly problematic or expensive if you have to dig up a neighbours land to link into the National Grid, so in some cases it may be worth considering going into partnership with them.”

Maintenance

Solar firms are responsible for maintenance costs and usually have their own insurance in the event of damage to equipment. “But it’s worth checking this from the start, especially if you’re planning to graze stock on the land once the solar park’s built,” says Mr Matts. “Also, some companies may only allow sheep to graze around the panels.”

Access is another area to consider carefully, especially during the construction phase, he says. “You might be looking at 160 articulated lorry loads coming in total. If they have to get across several fields, it can be difficult even in the best of conditions. If tracks need to be improved or extra ones built, you need to establish who will pay for this. Also look at how the equipment will be taken out again at the end of the rental period and who will pay for this.”

Impact on SPS

While there are not yet any farm-based solar parks operating in the UK, the Rural Payments Agency has suggested how single payments could be affected by the installation of solar panels on land.

It says the area taken up by the solar panels themselves (including support legs, etc) will not usually be eligible for SPS payment, therefore, the farmer should deduct these areas from their SPS application. “When considering whether the rest of the land parcel is eligible the farmer must consider whether or not he can demonstrate that the primary purpose of the land is agricultural.”

For example, if the primary function of the land parcel is for solar panels, the whole land parcel is ineligible, whereas if the land around the panels (and maybe also under the panels) is grazed in line with normal grazing activity then this land can be considered eligible – but the farmer must still deduct land which cannot be grazed from their SPS application.

Cross compliance requirements, in particular keeping the land in good agricultural and environmental condition, also need to be adhered to.

The RPA says it is unlikely the area will be eligible for SPS payment while the panels are being installed, depending on how long this takes, and the farmer may wish to exclude this area from their claimed area for that scheme year.

“If the farmer has any concerns with meeting any cross compliance rules when they are setting up the solar farm, they may be able to get a derogation from us if they write and request one in advance of the work taking place and explaining what standards they may not be able to meet,” a spokesman says.

What solar park developers look for:

• Area of high solar radiation, ie, south/ southwest England

• Around 15-20ha of flat or south-facing land

• Well screened, but not shaded

• Close to National Grid connection

What to look for in a developer:

• Credibility and solvency

• Experience/ history

• Proven track record elsewhere in Europe

• Financial standing and access to funding

• Seek independent advice