With the reduced cost of solar panels and high performance of rental incomes, solar farms offer some great benefits for landlords.
This article looks at the various benefits for landlords considering leasing land for solar farms and gives an overview of the current solar energy market.
The solar market
Given the continued, steady growth in the solar power industry over the past couple of years, it is no surprise that, according to the International Energy Agency (IEA), solar energy alone accounts for almost 60% of global new renewable capacity additions.
UK solar capacity is set to double by 2030 (from the current installed capacity of 13.08 GW) however that achievement still falls short of the 40GW by 2030 target set by the Climate Change Committee as part of their Net Zero Pathway and leaves a lot to be desired in light of their target for 85GW by 2050.
Solar continues to become more affordable too, with the global cost of commercial solar PV having fallen by 85% between 2010 and 2020. The market is thriving and this is great news for landowners.
To take advantage of this opportunity, landowners will need to have or be located near a grid connection to the National Grid with a large amount of free grid capacity nearby (anything from 5MW – 120MW).
Why choose solar?
Income opportunities for solar farms
The rental incomes from solar farms continue to perform well, with current subsidy free solar rents at anywhere between £850 – £1,100 per acre per annum depending on size and location. ‘Top up’ revenue rents offer another incentive for landowners, with many achieving percentages of around 4-6%. This means that where 6% of the developer’s revenue exceeds the acreage-based rent, the landowner is paid a top up between the two figures.
The caveat is that achieving these rates depend on the amount of solar radiation the site receives and various costs including connecting to the national grid, planning, installation and the cost of finance. It is also worth remembering that in general legal and development costs are paid by the developers, leaving the landowner free to accrue the rental income.
Another benefit is the long term income available from solar. Leasing arrangements are generally over 30-50 years, meaning that solar can provide guaranteed, index-linked rental income for a number of years which can be passed down the generations with the land.
Land can still be used for grazing and restoration
Solar farms are generally constructed in such a way that the land can also be grazed, primarily by sheep or poultry, therefore making the site dual use. However, caution should be had when negotiating lease agreements to ensure the developer takes on the risk of insuring the solar array against any damage caused by sheep, for example.
It can also be used to increase diversity, as the ground can be sown with grass mixes and wild flowers. This in turn attracts bees and pollinators and means that lower grade land can be put back into productive use.
Lower visual impact than other green energy
Solar Farms have a much lower visible impact than other renewable energy technologies, such as anaerobic digestion and wind turbines. They can also be screened by fences or hedging and do not emit any noise. Operation and maintenance, as well as security, can be monitored remotely.
Solar farms can be easily decommissioned
If the land is required for other use after the end of the leasing period, a solar farm can also be easily decommissioned, however caution should be had when negotiating lease agreements to include a decommissioning bond or otherwise and this is one of several key areas in which our Energy team can offer our expertise and assistance.
What to expect from solar
With costs continuing to fall, we are now seeing more and more large ground mounted solar schemes being developed.
More generally across the UK, 310MW of solar PV capacity was installed in the first half of 2021 with 135MW installed in the second quarter of 2021 alone. As at the end of January 2022 there is nearly 14GW of installed UK solar capacity. Whilst the majority of installations numerically are small domestic systems of under 4kW, the 5-25MW capacity systems comprise the most capacity deployed and we expect that large-scale solar farms will continue to dominate UK solar capacity for the next decade. We are seeing an increasing pipeline of new sites every month which continues to fuel the growing solar industry.
Solar farms will now need to increase in size to drive down the costs and the norm will be anything from 5MW to 120MW+, with approximately 25 acres being required for every 5MW generated. This now means landowners are joining together with neighbouring landowners to provide an adequate amount of land for development.
What about battery storage?
The business case for grid-connected energy storage continues to build, now providing multiple revenue streams and proving essential to deliver the services offered by National Grid.
With an ‘extraordinary’ solar and battery storage boom underway in East of England according to the UK Power Networks, this offers landowner’s another revenue stream as many solar developments are now run with battery storage in tandem.
Next steps for landowners considering solar farms
Landowners who are interested in leasing their land for solar power generation will need to find out if they have a grid connection located on their land or neighbouring land with surplus power in the local area.
They will also need to provide details of the potential site to land agents or developers involved in subsidy free solar. The land agent or developer can then assess the potential solar generation capacity, the likely grid connection cost and whether or not local planning laws are favourable.
The next stage is to agree the heads of terms for the option and lease of the land. It is crucial to seek legal advice when drafting the heads of terms setting out the agreement upon which the option and lease will be drafted. Although not legally binding for the most part, heads of terms are difficult to move away from once signed and dated.
Once agreement has been reached an option (which includes the lease) will be negotiated. Once entered into, this gives the developer the sole right to seek planning permission, grid connection and other consents required to develop the solar farm with a certain timeframe.
The construction of the solar farm should, if the costs of solar continue to fall, take place within one to three years of the option being completed.
For professional legal advice on solar energy and any other renewable energy matter, please get in touch.