Dual land use: Structuring renewable energy projects to support natural capital

Renewable energy projects are increasingly being developed alongside natural capital initiatives. The requirement to deliver Biodiversity Net Gain, developers’ keenness to enhance their ESG credentials, and the emergence of natural capital markets have all accelerated that shift. With landowners looking to maximise the value of their holdings, many are asking whether a single piece of land can deliver multiple revenue streams.

Dual land use in renewable energy projects is not new and solar projects, in particular, are well-suited to complementary biodiversity initiatives thanks to their limited infrastructure footprint. Other technologies can deliver the same benefits but usually on a more limited scale. 

Creating landscapes and habitats that deliver biodiversity enhancement above statutory requirements can create an opportunity to generate additional revenue by selling units to other developers requiring offsite mitigation. Landowners can also benefit from carbon sequestration schemes by adapting or restricting agricultural use.

With careful planning and legal structuring, it is possible to deliver both energy generation and environmental enhancement. It requires landowners and developers to think strategically about project design, land agreements, management obligations and the allocation of value created from natural capital initiatives. Let’s consider some of the practical issues when it comes to this kind of dual land use.

1. Compatibility with project design and operation

Habitats and landscapes created to support biodiversity initiatives must remain compatible with the energy projects’ operational requirements, specifically avoiding any restriction or interference with cable routes, access tracks, and maintenance works.

2. Long-term management obligations

Many natural capital initiatives require long-term commitments. Biodiversity Net Gain schemes usually require areas to be maintained for at least 30 years, often secured through conservation covenants or planning obligations. These obligations need to be considered alongside the lifecycle of the energy project and the expectations of lenders and investors. Responsibility for habitat and landscape management, monitoring, and funding should be clearly allocated. 

3. Revenue allocation

The parties will need to agree how revenue generated from natural capital initiatives – for example, the sale of biodiversity units – will be allocated. Generally, benefits arising from the ownership or management of the land will often fall to the landowner, whereas value created through the development or through ecological enhancements delivered by the developer (including off-site works carried out as part of the project) are typically due to the developer. The allocation and any other revenue sharing arrangements are usually addressed in the commercial arrangements for the energy project.

4. Avoiding double counting

Works used to generate biodiversity units cannot generally also underpin carbon credits or other environmental market schemes. Care must therefore be taken to ensure environmental outcomes are allocated clearly between different schemes.

5. End-of-term liabilities

Landowners will want to ensure they do not inherit unexpected obligations at the end of the developer’s lease term, particularly where long-term habitat commitments extend beyond the operational life of the energy project.

6. Future-proofing agreements

Natural capital markets are likely to evolve significantly over the coming decades. Agreements should therefore allow as much flexibility as practicable to accommodate changes in regulatory frameworks, environmental standards, and project technology without restricting future participation in environmental markets or future repowering of the energy asset.

Key Takeaways