6 October 2022

Powering the UK: Renewables and rural affairs – Polly Reeve and Henry Vane write for EG

Rural landowners would not admit it publicly, but many of them lie awake at night thinking about rows of wind turbines or fields of solar panels.

Renewables appear lucrative and easy compared to the hard slog that is agriculture. They are the Massey Ferguson combine harvester to agriculture’s hand scythe.

First and foremost, the returns on renewables are enormous. Annual rent for a solar farm is around £1,000 per acre, three or four times what the most efficient farmer might generate from the best land. Secondly, they require virtually no looking after, since typically the energy company manages them day to day. Thirdly, everyone involved can hold their head high in the knowledge that they are doing their bit to protect the planet’s future.

Alas, the reality is not always as exciting as the idea. Renewables have their drawbacks, as well as advantages.

Short-term cost

We hear that around 10% of proposals lead to an operational solar farm. The high failure rate is partly due to speculative developers who approach multiple landowners without really considering whether their land is actually suitable.

Partly it is also a reflection of the complicated regulatory landscape. Securing a grid connection and planning consent is hard. Even for the successful minority, from proposal to working wind farm takes years, not months.

Successful or not, landowners need to invest considerable resources – in agents, lawyers, consultants, their own time – in a process that leads to disappointment more often than not. The developer will cover some of these costs, but rarely all of them.

The big money does not come until the turbines are turning or the sun is shining on the panels. In the preparatory stages, where a developer is seeking planning consent and a grid connection, landowners will receive a smaller option fee – perhaps £5,000 for 100 acres – in exchange for quite severe restrictions on the land. The landowner generally cannot negotiate with other energy companies and the chosen developer has wide discretion to enter onto the land to carry out tests and preparatory works and keep equipment on the land. If the land is mortgaged, lender consent is needed and, if the land is let, the farm tenant has to be on board.

There is always an element of trust and a successful project will rely on a good working relationship between a landowner, farm tenants and a developer.

Long-term cost

Where a renewables project actually happens, the term is typically somewhere between 25 and 60 years. Once concrete panels and turbines are in the ground, agreements are legally and logistically hard to back out of. Landowners should know that they are committing their land in the long term and there is an opportunity cost.

While your field is full of solar panels you cannot do much else with it. If you negotiate hard, you might be able to graze a few sheep, but you certainly cannot plant any serious crops because harvesting becomes impossible. You can forget about shooting and may be limiting yourself in terms of environmental land management schemes. The energy company will build roads, fences, chop down trees, erect substations and excavate soil. Some of these rights will extend to your land outside the solar farm too.

While it may seem attractive now, relinquishing land that has always been used for producing food and, in tandem, delivering environmental benefit, could carry with it risk. This kind of land use change currently carries significant economic, social and political support, but landowners are, to some degree, reliant on this continuing to be the case.

The options and leases through which renewables projects are structured are complicated, sophisticated and commercial agreements. Legally, they have much more in common with industrial, urban developments than most rural agreements. Landowners need someone on their side who understands what the developers actually need and what they will concede.

Net zero, biodiversity net gain and food security might all fall in the green category, but they are often mutually exclusive. Policy ebbs and flows with successive governments and we live in what feel like peculiarly unstable political times. Yet landowners are being asked to make changes that will last generations.

Governments, left or right, need to be consistent and support renewables schemes in the long run. If not, they risk messy U-turns as landowners put their property to other uses.

Changing land use takes time (years) and it needs proper consideration for habitats, river and watercourse management and consequent flooding and pollution risks. Land returning to food production also requires careful regeneration. Correct removal of energy generation equipment and infrastructure is critical to mitigate environmental damage. Political U-turns could do great damage not only to the prosperity of landowners, but also to the British countryside that is one of the nation’s great assets.

Decommissioning cost

A 2020 government study suggests that it will cost £60,000 to decommission a single wind turbine at the end of its life. Few renewables projects have reached that stage yet, but everyone agrees that decommissioning will be expensive. Lawyers are alive to this and draft tight covenants in the agreements to ensure that the energy companies tidy up after themselves. The trouble is that energy companies create special purpose vehicles – without any other assets – to enter into the agreements and manage the site. Plus, they like to assign the benefits to other group companies or third parties. Decommissioning bonds – where the energy company pays into a ring-fenced fund – and insurance are other means by which landowners seek to protect themselves against the future liability of a field full of rusty solar panels securely fixed to the ground.

You cannot be certain of enforcing the energy company’s obligations so far in the future. Decommissioning is perhaps the most important point to negotiate.

Tax cost

If you stop growing barley and start growing wind turbines, income will increase substantially, which is a good thing. But inevitably there are tax implications.

Many landowners carefully arrange their affairs to maximise agricultural property relief (APR) and business property relief (BPR), thereby reducing their inheritance tax liability. Replacing sunflowers with solar panels will clearly make that field ineligible for APR. It can upset the overall balance of an estate or farm. Income needs to be 50% trading, as opposed to investment, to qualify for BPR, as set out in Commissioners for HM Revenue and Customs v Brander (as executor of the will of the late fourth Earl of Balfour) [2010] UKUT 300 (TCC).

Although it has not been tested in court, taking rent from renewables will likely count as investment rather than trading income, and harm your Balfour balance. If landowners manage the renewables themselves – which is virtually unheard of – then it might count as trading income. And the 50% figure is likely to increase to 80% soon.

Millions of pounds can rest on these reliefs, so it is vital that these are factored into decision making. Sometimes it also makes sense for the landowner to set up new companies, trusts or partnerships to manage the income or own the land.

Localised cost

Nothing can unite a community like opposition to wind turbines or solar panels. Neighbours will do their best to create a hostile environment.

The physical environment can suffer too. The wider national and global need for renewable energy is clear, but the localised damage it can cause is often overlooked. Sinking tons of steel and concrete into the ground is clearly harmful and, as mentioned above, leaves future liabilities.

Land around turbines and solar panels is hard to farm and cultivate, so it often degenerates to scrub and ragwort, unless properly managed. What constitutes sustainable land use is a contentious subject. Even growing and generating energy from biomass can upset the local eco-systems since the digestate produced and used as fertiliser is still too ammonia-rich and leads to a host of environmental issues.

Great care must be given to land management once the installation is in and the developer has moved on to the next project. This is where the landowner can play a key role and, we believe, there is great scope for renewables and biodiversity to make friends. As the structure of natural capital agreements, environmental grants and biodiversity net gain requirements becomes clearer and with continued support for scientific research and development, more can be done to mitigate the environmental impact of renewable energy generation, while enabling landowners to continue to own and manage their land sustainably.

Tread carefully

The point of this article is not to deny the transformative and positive opportunities renewables present for many landowners and for government net zero targets. Nor is it to question the global importance of generating power in an environmentally sensitive way. Rather, it is to highlight the practical, local considerations that landowners and governments must consider when pressing for the delivery of green energy in rural areas. It should be done with eyes wide open, a full appreciation of the pros and cons and government commitment to renewable energy in the long run.

This article was originally published in EG (5 July 2022) and is also available to read here behind their paywall.

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