Landowners should think twice before signing renewable energy agreements which could see them tied into astronomical bills and unsuccessful projects.
Too many farmers and other landowners are allowing prospective large-scale energy projects on their land to be instigated in the developer’s name, according to independent power and energy specialist Roadnight Taylor.
This leaves landowners open to poorly negotiated rents and lease terms – and the high failure rate of most developers’ grid applications. But the alternative – applying in their own name without specialist advice – is even more dangerous and risky.
“In one case recently, a poorly-advised landowner accepted an offer for a 50MW project that was going to cost £11m to connect to the power grid – which was never going to be financially viable,” explains director Hugh Taylor.
“They put down a £50,000 grid deposit but hadn’t spotted that they were liable for a £250,000 charge if they didn’t withdraw by a certain date – when they approached us they had just 24 hours to escape.”
In another case, the grid connection offer came with the proviso that the landowner contribute nearly £300,000 towards £1.5 million of network reinforcements – which, taken at face value, didn’t render the project unviable.
Mr Taylor says the landowner didn’t realise they could incur the full £1.5m cost if for any reason they were unable to connect their scheme. This could include the bill for failing to secure the right planning consent.
“It’s so important to safeguard your rights and protect against risks,” explains Mr Taylor.
“Allowing the grid application to be made in the developer’s name means you can’t get developers competing for your site, it reduces your chances of achieving a scheme in the first place, and it cedes control in negotiations.”
But if seeking grid connections in your own name it’s absolutely vital to take specialist professional advice, he adds. Too many land agents think that they can advise on grid connections, but it is an incredibly complex area.
A thorough understanding of the energy market is vital to see whether a grid connection offer is financially viable. The network operator has to provide a connection quote for every project – but if the quote is too high then no developer will take it on.
The acceptance rate of grid connection offers is as low as 8%, depending on the Distribution Network Operator. Each of those failed projects would have cost over £1,000 in consultants’ fees and up to £8,000 in application fees, says Mr Taylor.
In many cases, the flawed application will have cost the landowner many millions in future ground rent receipts too. In contrast, Roadnight Taylor says it had an acceptance rate of over 90% for its landowners’ connection offers.
Mr Taylor says this secured enough grid capacity for 2GW of solar panels – equivalent to around 2400ha (6,000 acres). It can also hold grid rights on trust for the landowner, completely insulating them from financial risk.
“Getting the correct connection rights is very challenging, and there are risks to accepting offers that contain cost apportionments and securities for wider works, as they can easily reach £100,000s.”
Another risk to allowing connection rights to start in the developer’s name is that they could go bust, lose interest in the site, or not negotiate in good faith. Mr Taylor says landowners should be proactive and get in there before your neighbours.
“Make sure you’re being properly advised,” he adds. “If you do decide to accept a grid offer, you then need to safeguard your rights and then, at the right time, smoothly transact them with a developer of your choosing to take the project forward.
“The grid rights need to end up in a developer’s name at some point – unless you wish to pay for the planning application and project build – but you must guard against the risk of them going cold on the site or going bust.”