In an increasingly tough climate for land ownership in Scotland, with mounting legislation and political pressure on large-scale landowners, it is important that estates continue to look for new and ingenious ways to maximise their assets.
With this in mind, when approached by a developer interested in potential sites for Anaerobic Digestion (AD) plants, I was keen to come up with some options. The site criteria were clear: large farming estates which can grow suitable feedstocks, with a suitably secluded site for planning and a conveniently placed mains gas connection with available capacity.
One client immediately sprang to mind. They had been investigating the opportunity to install their own AD plant, but concerns about the high investment costs and the intrinsic link to unpredictable farming outputs made them decide the multi-million pound investment was too high-risk and the project was shelved.
Having completed signiﬁcant work on the feasibility before reaching this decision, and knowing that a medium pressure gas main ran immediately adjacent, I knew this site was likely to be a suitable candidate. The developers are looking to take a 25-year site lease for the plant and also a separate feedstock supply contract for the same duration. These lengthy agreements provide the estate with long term security under the site lease and also provide much needed conﬁdence in the farming enterprise, without the costs or risks involved in the estate undertaking the plant development themselves.
The developers were looking for two sites, and a second estate also presented itself as an ideal opportunity. The forward-thinking farm manager on this estate is looking to “Brexit-proof” the estate’s substantial arable enterprise in anticipation of the potential need to farm post-subsidy.
As the AD plant is funded by the Government’s Renewable Heat Incentive scheme (RHI) rather than agricultural subsidies, this goal is achieved. The RHI payments are ﬁxed (RPI linked) for the 25-year lifespan of the plant, so crop production will be undertaken on a 25year contract at ﬁxed (RPI linked) prices, rather than the present arrangement where grain prices are based on volatile world markets and the future of subsidy is uncertain. This aﬀords the farming enterprise the comfort needed to invest in machinery for feedstock production, knowing that they have the security of a long-term supply contract.
By operating the sites through an entrepreneurial developer, either under a lease or through a joint venture, rather than installing the plants themselves, both estates beneﬁt from the expertise and drive of the developer and minimise their own risk and capital investment. Equally, by working with large farming landowners, the developer beneﬁts from having the site and feedstock provided by the same entity, which aﬀords them the comfort that their investment is safe from being ‘ransomed’ by a feedstock producer jealous of the site rent, which is key to their successful business model.
The good relationships established between landowner and developer in progressing both the site construction and feedstock supply ensure the continued success of the projects for the mutual beneﬁt of both parties. Whilst both of these schemes are at a very early stage, having been very speciﬁc in the site selection criteria, the developer is optimistic about their success.
The beneﬁt of AD over some other forms of renewable energy is that the development is inherently agricultural in terms of looks, smell, scale and operation. As such, it doesn’t tend to come up against the same hurdles in terms of planning and regulation as some of its other renewable energy counterparts.
While these two projects involve the development of AD plants, the take-home message can be more widely applied. Where entrepreneurial opportunities arise, they can be progressed under various business models to achieve the respective goals of both landowner and developer. Likewise, through holding open discussion with the developer about the various enterprises on the wider estate, the beneﬁts of the proposal can be felt not only by the landowner and developer, but also by other businesses in the vicinity.