Top Real Estate Renewables FAQ’s

A project is typically secured through a single or series of options for lease and option for easements over the project land. The first step for a developer is to enter into an option with a landowner giving an exclusive right to take a lease once certain key milestones haven been achieved namely planning and grid. The Option protects the developer from the site being offered to other competitors. Once the milestones are achieved the developer exercises the option and takes a long term lease of the project land. Often a project will also require easements for access or cable rights over third party land to connect to the electricity network and these are also secured by way of option.

The key difference is the commitment from the developer. An option gives the developer the right but not the obligation to take the property if the project becomes viable. As an example the land is tied up under an option while the developer obtains planning and grid but even if successful for grid and planning the developer can simply allow the option to lapse. On the other hand a conditional contract means both parties are committed to the transaction and if the conditions specified are satisfied then the lease must be completed. The majority of energy transactions are option contracts simply because the level of uncertainty around external factors such as government policy and equipment costs which are manufactured abroad.

Easements and wayleaves are legal rights that allow energy infrastructure to be installed, maintained and accessed on land owned by someone else. Energy projects need easements and wayleaves because the project site and the grid connection point are rarely on the same land. A battery, solar or wind project may therefore need rights to install cables, access tracks, substations, drainage and other infrastructure across third-party land. Without these rights, the developer may be unable to build, connect or operate the project.

The difference between an easement and a wayleave is what they bind.  An easement is a permanent property right that benefits the energy project and binds future owners of the land.  A wayleave is a contractual permission, usually personal to the utility company or developer, allowing equipment such as cables or overhead lines to remain on the land. Wayleaves are often easier and quicker to obtain than easements but provide less security because they can, in some circumstances, be terminated.

For example, a solar farm will require an easement to lay and maintain underground cables across neighbouring farmland to reach the grid connection point. Once granted, the right will generally continue even if the burdened land is sold whereas if only a wayleave had been granted it would not bind if the land is sold.

Before signing any option there are several key areas that a landowner should consider:
1) Extent of the land being affected
2) Option Period length and the ability for the developer to extend it
3) Financial Terms – both in the option and the lease
4) Restrictions on land use both during the option and the retained land during the lease
5) Rights being granted to the developer over land not being demised by the lease
6) Assignment rights under the option and lease – what can the developer do with the option and lease. Does the landlord want any control on this?
7) Restoration and decommissioning – what happens at the end of the lease and who is responsible for removing the equipment
8) Tax and Estate implications – ensure that the grant of the lease won’t materially impact IHT relief or agricultural relief, capital gains tax and subsidy arrangements amongst other items.

The funder will want to consider that the project is “bankable” which means that key risks have been identified and managed. The main areas that a funder will look at are:
1) Secure land rights – has the project got all the land and rights it needs to occupy build and operate the project
2) Planning Consent
3) Grid Connection and rights over land for a secure route to grid
4) Technical Due Diligence – independent reviews of the programme of works, energy yield assessments and operational assumptions
5) Financial Model – projected revenues, costs, debt service coverage ratios and contingency provisions
6) Revenue Certainty – where is the money coming from: Power Purchase Agreements (PPAs), Contracts for Difference (CfDs) or capacity market agreements or merchant sales.
7) Construction Contracts – EPC which covers the build plus warranties and performance guarantees will be reviewed to ensure construction risks are properly allocated.
8) Security Package – The funder will usually take security over the project company, key project documents, bank accounts and project assets. Direct agreements with landowners, contractors and offtakers are often required.

The Nationally Significant Infrastructure Project (NSIP) regime is the planning framework established under the Planning Act 2008 for large-scale infrastructure projects in England and, in some cases, Wales. Rather than seeking planning permission from a local planning authority, NSIPs require a Development Consent Order (DCO) granted by the Secretary of State following examination by the Planning Inspectorate. A project falls within the NSIP regime if it meets the statutory thresholds set out in the Planning Act 2008 for types of infrastructure such as energy, transport, water, waste and wastewater projects. For example, solar generating stations above the relevant generating capacity threshold and certain large electricity transmission projects will generally be treated as NSIPs and require DCO consent.