Don’t take a risk with energy agreements

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Landowners must think twice before signing renewable energy agreements as they could end up tied into astronomical bills and unsuccessful projects. According to independent power and energy specialist Roadnight Taylor, too many landowners are allowing prospective large-scale energy projects on their land to be instigated in the developer’s name. This leaves them open to poorly negotiated rents and lease terms – and the high failure rate of most developers’ grid applications. But the alternative – applying in their own name without specialist advice – is even more dangerous, as they may be unwittingly taking on millions of pounds of risk.

“In one case recently, a poorly-advised landowner accepted an offer for a 50MW project that was going to cost £11m to connect to the power grid – which was never going to be financially viable,” explains director Hugh Taylor. “They put down a £50,000 grid deposit but hadn’t spotted that they were liable for a £250,000 charge if they didn’t withdraw by a certain date – when they approached us they had just 24 hours to escape.”

In another case, the grid connection offer came with the proviso that the landowner contribute nearly £300,000 towards £1.5 million of network reinforcements – which, taken at face value, didn’t render the project unviable. What the landowner didn’t realise was that they could incur the full £1.5 million cost if for any reason – including failing to secure planning consent – they were unable to connect their scheme.

“It’s so important to safeguard your rights and protect against risks,” explains Mr Taylor. “Allowing the grid application to be made in the developer’s name means you can’t get developers competing for your site, it reduces your chances of achieving a scheme in the first place, and it cedes control in negotiations. But if seeking grid connections in your own name it’s absolutely vital to take specialist professional advice,” he adds.

“Too many land agents think that they can advise on grid connections, but it is an incredibly complex area. To be consistently successful, you need to understand the energy market to see whether a grid connection offer is financially viable. The network operator has to provide a connection quote for every project but if the quote is too high then no developer will take it on.”

The acceptance rate of grid connection offers is as low as 8%, depending on the Distribution Network Operator – and each of those failed projects would have cost over £1,000 in consultants’ fees and up to £8,000 in application fees. In many cases the flawed application will have cost the landowner many millions in future ground rent receipts too. In contrast, in 2020 Roadnight Taylor had an acceptance rate of over 90% for its landowners’ connection offers, and secured enough grid capacity for 2GW of solar panels – equivalent to around 6,000 acres. It can also hold grid rights on trust for the landowner, completely insulating them from financial risk.

“There is an extraordinary gulf between a land agent’s expertise and real grid experts,” warns Mr Taylor. “Getting the correct connection rights is very challenging, and there are risks to accepting offers that contain cost apportionments and securities for wider works, as they can easily reach £100,000s.”

Another risk to allowing connection rights to start in the developer’s name is that they could go bust, lose interest in the site, or not negotiate in good faith. “So be proactive, get in there before your neighbours do, and make sure you’re being properly advised. If you do decide to accept a grid offer, you then need to safeguard your rights and then, at the right time, smoothly transact them with a developer of your choosing to take the project forward,” he adds.

“The grid rights need to end up in a developer’s name at some point – unless you wish to pay for the planning application and project build – but you must guard against the risk of them going cold on the site or going bust. You need a legal framework that ensures you can have another go and pass the rights on elsewhere if the worst happens.”

Panel – Questions to ask your adviser to ensure they have the required expertise:

  • How many of your team have held senior (management) engineering roles at Distribution Network Operators?
  • How many of those had responsibility for network design and network connections at extra high voltage; and
  • How many of those have managed network innovation projects for their DNO?
  • Do any of your team sit on the Steering Group or Expert Connections Panel for your specific DNO?

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