Is Now the Right Time for Landowners to Invest in Renewable Energy Generation?
Renewable energy is a hot topic (no pun intended). The need to address climate change, rising energy prices, and energy security concerns in relation to the Russian invasion of Ukraine all mean alternative energy sources are of growing interest. For landowners, this represents a potentially attractive investment opportunity.
With the Basic Payment Scheme now being phased out, an increasing number of farmers and landowners are looking for ways to diversify their income. But is renewable energy generation a good investment? What issues will landowners need to overcome? And what type of project is best for a particular area or type of land?
In this article, we cover all of these questions and give you our view on investing in renewable energy generation for landowners.
Why might landowners consider investing in renewable energy generation?
Renewable energy can be a fantastic investment, with UK projects generating returns of 75% over 5 years, according to research by Imperial College London and the International Energy Agency. As mentioned above, diversification is increasingly important for rural landowners, so these levels of potential returns should not be ignored.
Investing in renewable energy can also allow landowners to reduce their carbon footprint by meeting some or all of their own energy needs from renewables. This will become of increasing importance as the UK works towards its target of achieving net zero carbon emissions by 2050.
It is highly likely the UK government will need to use a mixture of incentives and penalties to encourage businesses to cut their carbon emissions, so getting ahead of the issue by investing in renewables could be a sensible move.
Renewables could offer a good alternative use for land which may no longer be viable for traditional farming. Raising livestock in the UK may become less attractive due to the growth in plant-based eating and growing public concern around emissions from cattle and other livestock. This could leave unused land that is ill-suited for arable farming but might be ideal for renewable energy generation.
What hurdles do landowners face when planning a renewable energy project?
Typically, landowners who wish to diversify into renewables will look for an energy company to partner with. The landowner will lease the land to the energy company, thus generating a rental income, which might include a share of the profits generated from the energy sales.
It is, therefore, the energy company that will have to deal with potentially tricky issues such as securing planning permission and a connection to the grid. However, there are a number of issues that the landowner will need to consider and plan for before entering into a renewable energy generation scheme.
Choosing the right partner company – The success of the scheme is going to depend hugely on finding the right energy company to work with. Landowners must do their homework, including looking at the company’s track record to see what successful projects they have already been involved in. Ideally, they should speak to other landowners the company has previously partnered with to make sure they are happy and there are no areas of concern.
Getting the right lease agreement in place – The lease agreement will be absolutely critical to make sure the project works for the landowner long term. They need to be crystal clear on the terms, including how their rental income will be determined, what their liabilities will be and how any disputes will be resolved. It is essential to have specialist legal support when negotiating the terms of the agreement.
Navigating third party rights – Different parties sometimes have reserved rights in relation to a piece of land and these could affect a renewable energy generation scheme. Examples include mineral rights that might be affected by the need to put deep foundations or lay cables, as well as sporting rights that could be impacted by the new project. Landowners will need to ensure there are no such issues or, if there are, seek to resolve them before moving ahead with the scheme.
Lender consent – If there are any charges over the land or adjoining property, it may be necessary to secure consent from the lender before a renewable scheme can go ahead. This should be considered early to make sure this will not be a barrier before too much time and money is invested in exploring a potential project.
Tax – Before entering into a renewal energy project, landowners should take expert advice from a specialist accountant as it may adversely affect their ability to claim agricultural property relief (APR).
Fluctuating energy prices – Energy prices change all the time, impacted by a range of factors. It is, therefore, critical to be realistic about the long-term average return you are likely to receive, while being prepared for disruptions to the market, which could potentially reduce the value of your investment.
Community reaction – Local communities are often opposed to renewable energy projects, typically due to concerns about the impact on the local landscape. Community engagement is key, so you should think about options such as creating a community fund to help offset any concerns.
What type of renewable energy project is right for your land?
There are various different types of renewable energy projects you can consider. It is important to make sure you choose a type of energy generation or a mix of types that are suitable for your site.
The most common options for UK renewable energy projects are:
Solar energy – This can be a particularly good option for locations in the South and South East of England, which tend to get higher levels of sunshine throughout the year.
Wind power – This may be a better choice for hilly and coastal regions with more wind.
Hydroelectric – It might be worth considering for areas with natural water sources to exploit. Can also be used in combination with other projects, where water is pumped uphill using excess solar or wind energy, then released to power hydroelectric generators at night or on cloudy or windless days.
Battery storage – This is suitable for a wide range of sites and can be a good investment in combination with various forms of renewable energy generation.
The Longmores view on renewable energy generation projects for landowners
“There is no doubt that renewable energy generation represents a good potential option for many commercial landowners. With the possibility of strong returns and reducing carbon emissions, it could be a good fit for those keen to diversify.
“However, the challenges should not be minimised, including making sure you choose the right scheme for your land and that you get the best terms for your financing and key commercial agreements.
“We strongly recommend seeking expert legal and accountancy advice before moving forward to make sure you have the best chance of a commercially viable scheme that meets your expectations.”
Speak to our commercial property experts about renewable energy schemes
Longmores’ team has strong expertise in commercial property and rural land, so we are perfectly placed to advise landowners and investors on the opportunities that exist within the renewable energy generation sector.
Our experts can guide you through every stage of renewable energy investment and development, including support with issues such as planning approval, financing, procurement and construction contracts, Power Purchase Agreements and renewable energy regulations.
Drawing on our previous experience advising clients in this sector, we can help you to plan effectively and deal with any challenges that arise, allowing you to maximise the value of your investment. Current clients include those investing in solar energy and battery storage, giving us a keen insight into what new investors can expect.
To discuss how we can help with renewable energy projects, please get in touch, and we will be happy to advise.
Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.