Demand for land to host grid-scale renewable energy projects such as solar and wind power reached unprecedented levels throughout 2020-21 and into 2022, reflected by that fact that 20 Gigawatts (GW) worth of projects entered planning in 2021 compared with 2 GW in 2016, spurred on by a growing need for renewable electricity to support the projected increase in demand over the next 30 years and investors seeking sustainable/green investments that meet their ESG requirements. This has been further strengthened by an increased focus on energy security.

Approaches to landowners are following the tried-and-tested structure of option and lease agreements with landowners effectively signing increasingly large blocks of land to developers in exchange for the hope of a future rental income stream. Landowners typically play a passive role in the development of such projects.

But often a proactive, strategic approach can pay dividends for landowners to optimise opportunities to minimise the likelihood of any potential upsides being left on the table. The two principal benefits being financial and the emerging carbon markets. This is particularly relevant where a landowner has wider interests and the carbon benefits of the renewable electricity generated can be used to supply power to other entities. From a purely financial benefit there are currently considerable additional advantages to be secured where a project reaches shovel ready stage.

For most grid-scale renewable energy projects, the developer-led leasing model is the most common approach where the developer takes on all of the project’s risks and the costs involved.

The benefits to landowners are:

• Minimal risk: all of the risk is adopted by the developer. There are critical stages of each project development, for example acquiring grid connection and planning, which require significant capital investment that is not refundable if the project does not go ahead.
  
  
• Minimal involvement: once the head of terms and lease are agreed and signed the landowner’s responsibilities are minimal, meaning their focus can remain on the original use of the land.
  
  
• The development stage usually only requires engagement with a single company.
  
  
• The developers typically have strong and competent internal teams maximising the chance of the project going ahead.

Another approach would see the landowner develop the project themselves. They could secure a grid connection and then bring in a developer, or secure planning as well and then sell the development interest but retain the rental income, or the experienced landowner could build and operate the energy project. 

Each of these stages have costs and risks, but in the simplest of terms, the further you take a project the greater the return.

The self-develop benefits are:

• Greater potential returns.
  
  
• Greater control of the project scope and direction, including who buys it.
  
  
• The landowner can exit at a point of their choosing should they decide further development is too risky.

However, exercise caution. There is greater risk with this approach as the project progresses and most of the costs cannot be recouped. It will be essential that the landowner is supported by a team experienced in project development including grid, planning, and the development of similar projects.

A good middle ground for landowners is where they enter into a joint venture in which they contribute to the project in return for a stake, which offers a greater overall return, allows greater control from both sides over the future of the project, and utilises the expertise of the internal team of the joint venture partner.

Each opportunity needs to be treated on a case-by-case basis which considers the best and most suitable approach for the developer and the landowner.

Further information

Contact Cameron Lloyd

A new dawn for solar power in Scotland