Solar lease opportunities: What to consider

Travel around the country and it is usually not long before you come across a solar farm that is either operational, or being built, with many others in the development pipeline.

There is no shortage of headlines about the latest plans for a new solar farm, often sparking strong debate locally and reigniting “food versus fuel” arguments whenever agricultural land is involved.

While views on large-scale solar farms are always likely to divide opinion, there is no escaping the fact the technology plays a pivotal role in helping to meet government targets to decarbonise UK energy supplies, and there remains a long way to go before these goals are met (see “Solar targets”).

See also: What to check before starting a permitted development project

Sites getting bigger

One of the most contentious issues surrounding new solar farms is the sheer scale of some projects.

Back at the height of the solar boom that followed the launch of the Feed-in Tariffs (Fits) scheme in 2010, the typical solar farm development was up to 5MW capacity, requiring 10-12ha of land.

The scale of sites then grew as technology costs fell, with many projects accessing the already present government-backed Renewables Obligation support scheme.

Today, many new sites are nearer 10 times that original size, at 50MW capacity, requiring 100ha or so, and often featuring additional battery storage capability.

Some are even bigger though, such as the proposed 500MW Sunnica solar farm covering a potential 1,000ha on the Suffolk/Cambridgeshire border, which, if approved, will be the UK’s largest.

The Lime Down solar park project in Wiltshire is another scheme under development, with a total capacity of 500MW of ground-mounted solar across several linked sites.

“In a post-subsidy world, it’s all about economies of scale for solar developers,” says Fisher German’s head of green energy and sustainability, Darren Edwards.

“We have seen solar technology costs fall substantially over the past decade, so projects can be financially viable without any support, providing there’s a big enough connection at a viable cost and available within a reasonable timescale.”

Grid capacity still drives plans

Grid connection remains an ongoing constraint for potential new sites, although the situation is constantly changing as new capacity becomes available, says Darren.

This often occurs where old generating sites (for example, a coal-fired power station) are decommissioned, or grid upgrade/reinforcement works have been implemented, freeing up capacity on that part of the grid.

“When grid capacity does become available, connection offers are made on a first-come, first-served basis, so there’s often a rush among developers looking to secure suitable sites in that area.

“A key difference to five years ago, is that distribution network operators now make grid connection offers on a ‘use it or lose it’ basis and charge an application fee and deposit to stop the land banking often seen several years ago.

“Developers now have to evidence they are making efforts to secure the land and progress the project, which puts a bit of time pressure on the whole process.”

Consider offers carefully

This creates opportunities for landowners with suitable sites, as the long-term rental payments being offered by developers have climbed back to the levels seen at the height of the solar boom a decade or so ago, typically up to £3,000/ha (£1,200/acre), index-linked, says Darren.

“We always recommend negotiating a minimum base rent, plus an extra top-up based on a percentage of site turnover, typically worth 5-6%.

“We all know the pressure that farming is under given the demise of Basic Payments, so deals can seem very attractive. But farmers shouldn’t rush into signing anything until they’ve considered all the details and sought expert advice.”

Joanne Perritt, head of commercial property at South Manchester-based solicitors Myerson, agrees, adding that if farmers are approached by one developer, it is likely that others will also be interested.

Landowners can therefore be in a strong negotiating position, but given the complexity and long-term impacts of solar development, decisions must not be made lightly, she says.

Developers will often be keen to sign farmers up to an option agreement, which grants them a period of time – typically anywhere from one to five years, but maybe longer – to take forward the project, including grid application, planning and funding.

“The option for the developer to take a lease is legally binding in the sense that the landowner will be obliged to enter into the lease if/when the developer exercises the option.

“So, it is very important that all lease details are hammered out before you sign anything.

“There’s a lot to consider in terms of the obligations and effect the lease may have on the rest of your land, so make sure you are fully aware of what you’re signing up to.

“The developer is, however, unlikely to agree to any obligation to take the lease unless they wish to do so, therefore you need to be aware that you may tie your land up for several years and have nothing to show for it at the end of that period.”

To avoid being caught in this way, some lawyers advise that option agreements should be for no longer than a few months.

Lease lengths

Large-scale solar leases are typically for longer periods than in the past, now usually 40-plus years.

This is driven by the fact that developers need this long for projects to stack up financially and to satisfy funder expectations, but also by improvements to the technology, with panels and other equipment generally lasting longer, says Darren.

“Panels will only degrade by about 0.8% a year, so even after 25 years, performance is still more than 80%, and after 40 years, they should still be operating at two-thirds efficiency at least.”