Business Clinic: Is battery storage offer a good deal?

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

Jack Pocklington, energy specialist, Carter Jonas Rural, offers advice on battery storage.

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Q: Last year we were approached about a large solar development, but after an appraisal, it was decided our site was not suitable.

Now, we are considering battery storage and have been sent some figures.

Please can you advise whether this is an expected income or should we be looking for a higher rental? What other aspects should we be questioning/aware of?

The proposal is for a 40-year lease on 3.5 acres; running 6km of 33kv cable from substation; the rent is £1,250/MW a year, index linked to CPI (50MW = £62,500 a year); plus a premium one-off payment of £20,000 on preliminary acceptance certificate.

During the lease term, a decommissioning fund is to be set up, paid into annually with five-year reviews to cover decommissioning and remediating the land back to original condition (a schedule of condition to be completed before entering the site).

A: I will deal with the details of your proposal in turn, but first I would explore why the solar developer deemed your property unsuitable (was it the land itself, planning constraints or distance from or lack of grid capacity?) as this would inform negotiations with the battery developer.

The property will likely be held under an option agreement initially to allow the developer to secure a grid connection and planning permission with the lease only being triggered once both are in place.

This option could be up to 10 years, as we are seeing grid connection dates into the 2030s, so it is important that the options terms themselves (payments, rights, obligations, and restrictions) are also thoroughly considered.

The lease proposed is quite long. We expect leases of 25-30 years, with an option to extend, due to the need to replace the batteries.

Consider whether there is the option for either developer or landowner to break, and that the term length may be reflected in the rental offer.

Rental values

The base rent of £1,250/MW is below the prevailing market rate and an informed agent would be able to negotiate a higher rent.

We would look to secure a rent per MWh, as it is possible that developers will seek to increase the overall installed battery capacities over coming years to meet the growing demand for longer duration storage.

We also aim to secure a gross revenue rental mechanism to enable the landowner to benefit from any growth in the overall revenue generated on the site during the term.

Last year was an exceptional year for battery revenues due to multiple domestic and global factors resulting in turnover rental payments more than double that of the market base rents.

The £20,000 premium payment on practical completion (or often paid upon lease entry) for an assumed 50MW development is lighter than we would expect in the market.

Lease entry and assignment premiums should be reflective of development value uplift, which can often be significant. Landowners should aim to secure a share of such uplift upon milestones such as the grant of planning consent, assignments and energisation.   

Decommissioning fund

A decommissioning fund is standard practice. Ideally, this is in place from the project becoming operational but, due to the capital expenditure involved, that’s not usually feasible.

Paying into the fund yearly with a five-yearly review is standard, but landowners would be advised to ensure the fund covers for any potential liability associated with the batteries, and that the fund is fully in place by year 15.

We would advise against signing a letter of authority to enable a developer to apply for a formal grid connection until professional advice has been sought on the proposed terms for any development.

Failure to do so could prejudice a landowner’s negotiating position once the developer has secured a grid connection offer.   

It is industry practice for a developer to pay a landowner’s reasonably incurred professional fees, so we advise that landowners seek to engage specialist surveyors, legal and tax planning advisers with suitable experience of battery energy developments to assist on such projects.  

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