Clean power push brings grid reform and shifts site demand

In an effort to progress towards the government’s target of a net-zero energy grid by 2030, reforms taking effect now mean that for a grid connection application to proceed, developers must show they have secured the land needed for a project.

The change is designed to remove unviable or speculative projects from the queue for connections and to prioritise those with strategic importance and which are more advanced and capable of connecting quickly. This has led to a rush to secure farmland for projects and put large solar site rent offers at about £1,200/acre.

See also: Advice on insurance implications for renewable energy projects

Projects will have to reach milestones on the road to connection or lose their grid contract.

Previously, applications for connections were processed on a first-come, first-served basis, which led to a huge backlog and massive oversubscription for capacity. The queue is being reordered under the reforms, with a pause in applications imposed on 29 January for schemes above 5MW capacity.

Energy developers with existing connection offers must demonstrate that they have the land rights their project needs by the end of May, while entirely new grid connection applications above 5MW are expected to be possible some time in the second half of 2025.

The National Energy System Operator, responsible for planning Britain’s energy system and operating the electricity network, has predicted that the queue will halve because of the reforms, with so-called zombie projects with no prospect of being developed falling away.

Applications will now go through a two-stage process, with the second stage requiring evidence that land has been secured through ownership, a lease or a fixed option of at least three years.

Projects are also committed at this stage to submitting a planning application within a specific timeframe.

Regional approach

As well as the grid queue shake-up, the government’s Clean Power 2030 plan includes targets for grid connections by technology type and region.

There is also a proposal that both standing charges and energy wholesale charges will be set regionally instead of nationally, under the Department for Energy Security and Net Zero’s Review of Electricity Market Arrangements, in an effort to bring generation closer to the point of use.

At Savills, Robin Earle expects the changes to shift demand for land for energy projects.

At the distribution level (to businesses and households), the government’s 2030 and 2035 targets for solar are largely oversubscribed in term of grid connections, he says, but at the transmission level (high-voltage overhead power lines) there is still the opportunity for very large solar schemes, although grid connection is still a way into the future.

“Standalone battery opportunities are now very limited, but for wind there is still opportunity across much of the UK,” says Robin, who is associate director in the firm’s energy arm.

Onshore wind and private wire

“Where I think we’re seeing real opportunity to develop at scale is in onshore wind in England, which hasn’t seen significant new schemes in the last 10 years, and in private wire arrangements,” he says.

While the planning regime for onshore wind has been relaxed, few projects are yet under way.

Private wire schemes feed power directly from a generation site to a user, for example on industrial sites.

Generally, the closer the user, the more efficient this is, but Robin says delivery over distances of 3-5km is easily achievable and sites generating several megawatts can bear 10km if there are no complications with third-party landowners en route.

“If there is good wind generation from a site, it could stretch even a bit further,” he says. 

“We are seeing an increasing number of landowners doing deals direct with specialist developers [for private wire projects]. And data centres is the other thing which people are getting terribly excited about.”

Data centres require huge amounts of power and the opportunities are very site-specific.

“The grid can’t offer a level of connection that many of the large data centres need and therefore data centre operators are looking at a phased approach,” Robin says.

“For example, they might ultimately require 100MW but start off now with 30MW from the grid and will seek the opportunity to provide the rest of their energy requirement from renewable sources.

“If you know your area and know what developments are coming in terms of energy grid, and you know who is using energy around you, that’s where you have the opportunity to create value.”

Most large renewable energy installations are based on a lease model with an annual rent and often a share of the revenue generated by the site.

Getting the best deal can often be achieved by going through a tender process. This should include making sure the landowner’s professional fees are covered by the developer, says Robin.

Understanding the track record of the developer and where their funding is coming from is another aspect.

For example, what level of foreign investment a landowner may be comfortable with and whether the developer has a record of owning and operating sites or of selling schemes on to another party or developer.

Rush to secure land

“Right now there is a mad rush on for people holding grid connections to get those agreements through to show they have the land agreements to pair with the grid offers,” says Robin.

“Generally, they are looking for about 2-2.4 acres/MW, although in reality, developers like a bit more than that.”

“Certainly in solar areas, what it has done is put a proper base in the market – many in the industry quote £1,200/acre as a typical base rent. Some people have offered in excess of that but it has made negotiation clearer.

“I wouldn’t be surprised if option payments [made by developers for the rights to investigate a scheme and secure planning consent and grid connections necessary for a scheme] start to drop once that May deadline [for the second stage of connection applications] goes through.

“But I think if you have got a good location close to a grid location for a technology that’s in demand, you will still see good rents.

“What will fall off is those speculative sites that are further away and developer interest in areas where Clean Power 2030 says we have enough of a given technology.”

A recent Savills survey of developers showed that interest in new energy development in Scotland is likely to reduce, while in the south of England and South Wales it is picking up because those are the areas of higher population where the prices for generating electricity will be higher. 

Markets have cooled in some areas where there are many grid connections for solar and battery installations, and it is cooling further north, in areas that stand to see lower profitability through these regional price targets, says Robin.

“In areas where we are seeing a cooling off, landowners need to be specifically aware of where any energy development might go and of left-field opportunities like private wire. It’s not that energy is either on or off, it’s just that the opportunities are more specific.”

Positives from new regime

One positive outcome of the grid allocation reforms is that where a developer may have been given a 2035 connection date in the past, those that can demonstrate they have secured the land needed could now see their connection date pulled forward to 2030, says Charlie Clowes, a senior surveyor with Carter Jonas.

Given the long timescales needed for some renewable projects, it is advisable to ensure agreements include a clause so that if a grid offer proves unviable to a developer, then the option lapses.

“For example, part of the grid offer could cost the developer millions to upgrade an ageing substation,” says Charlie.

He also advises running a tender, putting land forward to a handful of developers and stipulating the landowner’s requirements. 

Developers will sometimes offer exclusivity for typically up to 12 months to keep the competition out of the running, with this eventually being superseded by the option agreement. Developers would need a minimum of six months but more likely 12, he says.

Options for potential renewable energy sites typically run for anything up to 12 years in accordance with the grid connection date, attracting a fee in the region of £2,000-£5,000 a year for an initial period.

In some cases, the option fee can be significantly higher, says Charlie, and there has to be evidence that the developer is progressing with the project – for example, by submitting a planning application. 

“There is usually a long stop date of, say, 10 years where the option falls away if there has been no progress by that stage.”

Rents for wind sites are paid by megawatt, often in stages, with one rate in years one to eight at, say, £7,000/MW, and rising to £10,000/MW in years nine to 20, and to £20,000/MW after that.

There is often a payment on top of this, calculated as percentage of the operator’s income from the site.

“This might be anywhere between 7% and 15% of the gross revenue, with payments in Scotland tending to be higher than in England because of the generally higher output from Scottish turbines,” says Charlie.

In some cases there is the possibility of further income if minerals such as sand and stone are available for extraction from the site owner’s land.