Business Clinic: How can we check out battery storage offer?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Here, Philippe Rottner, energy specialist with Carter Jonas, sets out how to check out an offer for a battery storage site on farmland.

Q. How can I check the resilience of a battery storage company to have the confidence that the project will succeed? Our farm has been offered these terms:

Rent: £1,500/MW (increasing with Consumer Price Index)
Lease term: 40 years minimum
Option fee: £10,000
Option period: Four years (to be confirmed once grid offer is secured)
All our agent and legal fees will be paid by the developer

The company has two overseas directors and one UK director. Please advise on the offer and how we can check the company credentials.

A. When entering negotiations, it is crucial to undertake due diligence on the company.

When meeting the developer, ask about their development history and funding structure. Developers should provide materials that summarise who they are and what projects they have already developed.

See also: Business Clinic – what are the premiums for battery storage?

Ask whether they are planning on building the site out or simply creating the project rights and then selling them on to another developer to build and operate the project.

This should not necessarily be perceived as a bad thing, especially if you have negotiated assignment fees into your option and lease agreement, meaning you could financially benefit from the assignment of the project to another developer.

If the rent receivable by the landowner is a fixed index-linked amount, it won’t be impacted if there is a change of control in the project.

However, if there is a revenue-linked rent, then it would be sensible to check the developer’s ability to operate the project efficiently, as this could have an impact on the amount of rent received.

In addition to the information received directly, conduct your own background check.

1. Developer websites should contain their project pipeline, testimonials, and information on team members. They are unlikely to develop all the projects in the pipeline.  Outside factors such as grid connections, planning permissions, funding constraints and inability to reach agreement with landowners will have a significant toll on the number of projects that are successful.
2. Researching the company in the “news” tab of a search engine may uncover articles about the company in question.
3. You can corroborate the developer’s own information on the Nationally Significant Infrastructure Projects register published by the Planning Inspectorate, or, if the development is smaller than 50MW, on the local authority website. 
4. Read through their annual accounts on Companies House, paying special attention to the balance sheet. If current assets less current liabilities is only a meagre amount, then they may not be able to pay the agreed fees.  This can be mitigated by a letter of guarantee from a parent company, often filed with Companies House.
5. Ask a professional who may have had previous dealings with the developer or their staff. They may also be able to undertake a credit check on the developer to highlight risk.

Heads of terms must be balanced and cover all eventualities. Focus time on the non-commercial elements of the proposal, as these can have a significant impact on how the lease is operated and the level of risk.

No two sets of heads of terms will be the same, because different landowners will have different requirements.

To ensure the landowner is protected against financial losses, special importance should be given to terms relating to reinstatement, indemnity, and insurance.

Review the break clause options and ensure the landowner has suitable rights to break the lease in the event of a breach by the tenant.

A further way of seeking protection and opportunity is to agree how the grid connection will be assigned in the event of a breach by the developer.

When the option or lease is agreed/triggered it’s important to ensure that all relevant legal documents are correctly signed and recorded prior to the developer taking entry to the land.

The process is a negotiation and initial terms often can be improved upon, and certain terms may need to be sacrificed to gain on others. 

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