After significant challenges faced by the UK's agricultural sector in recent years, such as the Basic Payment Scheme transition and soaring input costs, it comes as no surprise that farmers and landowners are considering ways to diversify their businesses. Some landowners have seized opportunities in the renewable energy sector by leasing land to solar energy companies to boost income. In light of Labour's pledge to establish Great British Energy to drive investment in clean energy and triple solar power, it is foreseeable that demand for solar sites will rise, but how will this affect food production?
What are the effects of solar projects?
The current impact of solar farms on national land use is minimal. DEFRA estimates that 71% of the UK's land is dedicated to agriculture. In contrast, ground mounted solar panels currently amounts to a little over 0.1% of the UK's land use. In order for the country to achieve the new Government's target of zero carbon electricity by 2030, it is estimated that only 0.3% of the land in the UK will require coverage by solar panels and going forwards, the Government intends to develop a "land use framework" to monitor and balance the demands of land usage.
Additionally, proposals for solar farm developments will need to secure planning consent. The National Policy Statement for Renewable Energy Infrastructure guides planning decisions and states as follows: "where the proposed use of any agricultural land has been shown to be necessary, poorer quality land should be preferred to higher quality land". As a result, projects on low grade land are more likely to secure planning consent over high grade, fertile land used for food production.
Consequently, energy security may be achieved by dedicating a small proportion of the country's existing marginal and low value land to solar farms.
What are the key stages of a solar project for landowners?
1. Exclusivity agreement
The energy company may require exclusivity over the land while initial investigations are carried out regarding the viability of the project. The purpose is to restrict landowners from entering into negotiations with other
developers in connection with renewable energy projects during the period defined in the agreement.
2. Option agreement
If the energy company wishes to explore the project, the parties negotiate the option agreement which normally includes provisions concerning:
- the extent of the solar development (both its physical size and megawatt capacity);
- the duration of the option period (anything from 1 to 10 years);
- obligations on the landowner to support planning applications made by the energy company and grant rights of access to carry out surveys;
- the form of lease to be entered into if the energy company pursue development of the site; and
- the option fee payable to the landowner.
3. Lease for solar farms
If the energy company decides to exercise the option, the lease is completed which will determine:
- the term of the lease (typically 25 to 40 years);
- the rent payable to the landowner (which may be expressed as pounds per acre, pounds per megawatt generated or a proportion of revenue depending on what was negotiated between the parties at the outset);
- rights granted to the energy company, such as access to lay cables, install solar panels and operate the site; and
- rights reserved for the landowner, which may include maintaining access rights over the land and sheep grazing rights.
4. Development, Grid connection and operation
The energy company develops the site, commissions the solar farm by connecting to the Grid (potentially with a new substation being installed) and the solar panels begin generating and selling power. The landowner receives rent over the course of the term.
5. Decommissioning solar farms
At the end of the operation period, solar leases typically require the energy company to restore the land to its original condition or in a way that is agreed with the landowner and local authority.
In the event the energy company does not restore the land, leases normally provide for decommissioning security – often a "decommissioning bond" paid by the energy company to cover restoration expenses incurred by the landowner.
Future of UK solar
The forecast seems bright for solar power. The Labour government has a mandate to carry out its manifesto commitments to make the country a "clean energy superpower". If this is actioned, farmers and landowners could capitalise on increased demand for solar projects, diversify their businesses and generate income from poorer quality land.
Trowers & Hamlins has a dedicated team of agriculture and renewable energy specialists who can advise at all stages of the solar project lifecycle and farm diversification. For further information, please contact Nicola Janus-Harris, Tom Craig or Alex McNie.
