Alastair Frew, a partner in the real estate practice at law firm Lodders and a member of renewables team, shares his thoughts on the reasons why interest in renewables is growing and the different types of renewable energy sources available, together with some guidance for farmers of what to think about before embarking on a renewables scheme.
A few years ago, the Government significantly reduced subsidies to onshore windfarms, as part of a policy to stop their construction on UK farmland. This Spring, the Government reversed the decision, thereby taking its foot off the development pipeline. The Government considers that allowing onshore windfarms will be less unpopular than allowing the development of fracking. Both would help to give the UK energy security, but they have very different pros and cons. New onshore windfarms are expected to be announced imminently.
Smart Export Guarantee (SEG) scheme:
From January 1 2020, the SEG provides a guaranteed minimum price for electricity generated by solar PV, wind, combined heat and power, hydro or anaerobic digestion.
This is for small businesses – 5MW, or 50MW for CHP – and is intended to encourage small businesses to install renewable energy systems for their own use, safe in the knowledge that they can sell any surplus to the Grid.
Some commentators say that SEG is worse than the old Feed in Tariff, which paid small businesses a small tariff for any electricity they put into the grid, based on an assumption of the supply, whereas SEG will be based on actual meter readings.
As with all tax changes, there will be winner and losers, but in the era of the smart meter, it would be illogical to pay for energy production without ever checking how much had been produced. Existing Feed in Tariff contracts will continue.
Potential cost/expenditure savings and reduced business overheads (always important but potentially more so now than ever) from being self-sufficient/off grid:
A small wind turbine or solar array, or an anaerobic digester, can generate enough power to take the farmhouse off grid, and perhaps the farm business also.
Diversification – e.g solar panels can be sited alongside grazing livestock:
At Cleve Hill in Kent, 900 acres of farmland is being turned into a solar farm.
The new panels are more densely massed, so the site becomes fairy industrial, but the total land take is smaller. 455 acres of the land is being used, while the rest is being returned to its previous use as river wetlands. The power will be sold to the National Grid, for 91,000 homes.
This more dense array, makes the array itself less useful for biodiversity (particularly as the Cleve Hill solar panels are to be mounted on tall stands, to raise them above the flood waters of the River Swale). However, this has freed up 165 acres to be turned into a managed wetland.
Local campaigners are less than impressed, as they wanted the whole site to be turned into a wetland.
Battery storage and substations:
When it comes to rental value, do not just value the panels/turbines.
Ask yourself: “Does your land have space for the vital substation?” If so, this is valuable. Increasingly, battery storage is becoming possible, indeed essential.
The stuff of sci-fi films until recently, electricity now really can be stored in batteries, ready to be used when the skies darken, or the wind drops.
These batteries are huge and should significantly increase the value of the site. As the solar revolution gathers pace, and as electric car usage increases, night-time and cloudy-day electricity will become extremely valuable – battery storage will therefore be valuable, even though no extra ‘units of power’ are generated.
Gas fired reserve power stations:
Do not forget these small but unglamorous power stations, that are an array of small gas-fired generators which provide the top-up power to the renewable network. If your land is near to existing major electricity infrastructure, then having a reserve station on site is worth considering.
Growing environmental awareness:
During the Covid19 lockdown, along with the huge reduction in noise from cars and aircraft, many of us noticed was how clean the air had become, how clear the night skies were. Many fewer car journeys, and hugely reduced industrial activity played a large part, but it was also due to the substantial reduction in gas and coal fired electricity generation. I, for one, would not wish to see a return to the smoggy skies of ’before lockdown’.
The growing efficiency (and legacy) of renewables:
Due to the huge cost of decommissioning our coal-fired network, and the huge cost of producing nuclear power, electricity from renewable sources is now cheaper to produce than from traditional sources. Further, it can have the advantage of being produced much more locally, thereby reducing the energy loss in transmission from power station to the end-user.
Ensuring secure energy supplies for now and the future:
The UK imports a lot of energy, whether in the form of enriched uranium, Russian gas, or French electricity, so building up our domestic capacity is essential to protect the country from future energy shocks. As the electric car revolution continues, motorists will also benefit from the more predictable pricing.
Security of tenure:
At present, the solar panels and wind turbines benefit from usual business tenancy security of tenure, which can therefore be excluded. There is no additional protection as with telecoms masts. However, be aware that the electricity produced is likely to require infrastructure from the electricity utility company who will probably require a 99 year lease before installing a substation, as well as their standard form of cable wayleave.
Tax savings – are available, but there is some confusion / uncertainty around these and over what qualifies as agriculturally exempt when it comes to business rates on solar arrays. If farms use more than 90 per cent of the power generated, they are exempt from business rates.
The danger is that the solar array is then extended, or the farming business reduces its need for power, and the farm then falls under this 90 per cent threshold. Suddenly, business rates are payable on the whole array.
Tax to pay – the income from the array is taxed in the same way as any other income.