What next for windfarms?
After some months of back and forth negotiations between the House of Lords and House of Commons, the Energy Bill finally reached Royal Assent on 12 May 2015. It set out a number of key changes to the energy market including the Tory manifesto pledge to end new subsidies to onshore wind projects in the UK.
The original wording set out for a closure of the Renewable Obligation (RO) subsidy to onshore wind farms from 31 March 2016, however this date was missed as the House of Lords pushed to include additional wording to mean that windfarms that received local planning consent after the cut-off of 18 June 2015 would be able to secure the RO subsidy.
Although the Energy Bill originated in the Lords, ultimately the Lords backed down after ping-pong discussions with the Commons to allow the Bill to go through and remove the uncertainty over grace period timings for developers so that those projects on the right side of the cut off could progress.
This is good news to some extent as it now means the market has certainty about what grace periods will be available and the terms of qualification. In brief, if a site had a viable grid connection, planning permission, and land rights before 18 June 2015 it qualifies for a grace period. It has up to 31 March 2017 to commission and lock in the RO subsidy. Sites that have also experienced delays with financing, Radar technology and grid connection can also qualify for additional grace periods that will mean a project could have up to 31 January 2019 to commission if the developers can provide suitable evidence of the delays experienced.
Putting the Energy Bill wording into Law is also now going to have the negative impact of confirming to some project developers that their site will not meet the requirements of a grace period or that they cannot bring the site to fruition before the deadline and so will not be able to secure the RO subsidy. This will likely have the knock-on effect of meaning the site is not financially viable and so may have to be abandoned.
We expect to see landowners who have not already had developers pull out of their sites, approached to either renegotiate terms or bring the Option or Lease over the site to an end.
Any landowners dealing with a developer that is pulling out needs to review the original contracts carefully to make sure that all payments due are received and the developer fulfils their obligations for site reinstatement and notice periods.
Landowners may also be asked by developers to extend Option periods or revise down rental terms to allow the developers to progress the scheme without subsidy once energy prices increase. Such landowners should think carefully about the value of the site and if they want to restrict their usage over a longer term.
If a developer does bring its lease over a site to a close, landowners would do well to appreciate the value of the information they have received over the term and how this could be used to realise some revenue from the site going forwards.
Any developer who has agreed to the financial commitments set out in an Options and Lease will have been confident that the site has real development potential and will have thoroughly investigated the grid connection capacity in the local area and the likely hood of securing planning consent.
Previous grid connections offers can be recovered and so landowners may want to consider taking a project forward themselves or as a joint venture partner with a new developer under the Feed in Tariff scheme, likely at a reduced scale to the original project.
Given the knowledge of grid connection capacity and planning constraints, landowners may also choose to put sites to market in the hope of attracting developers of emerging technologies such as battery storage or STOR. Landowners in this situation should be aware of the terms of the new option agreements and set out long-stop dates for the project to force developers into action but also to ensure they are compensated adequately at the start of the term to account for the increased risk of establishing newer technologies.
Charles HardcastleMRICS, FAAV
Partner - Head of Energy and Marine
Charles is a Partner, based in Yorkshire but who operates on a National basis across the country. He heads the Carter Jonas Energy and Marine Team which deals with a wide range of energy projects incl...