Farmers Advised To Maximise The Value Of Grid Connection Rights For Renewable Energy Projects

21 March 2014

Major changes in renewable energy benefits mean investors in wind-farm developments are racing to commission wind turbines across Scotland, property experts warn.

Strict guidelines are forcing developers to review their strategies for fear of missing out on big financial incentives, according to CKD Galbraith.

Subsidies for medium to smaller-scale renewable schemes provided under the well established Feed-in-Tariff (‘FiT’) scheme are now subject to ‘degression’, a system designed to ensure incentives do not excessively burden the public purse.

Tariff levels on installed projects registered for FiT are fixed, subject to index-linking for inflation. But tariffs for new registrants are now to be reduced progressively through degression. Last year wind energy proved so popular with developers that the commissioned and pre-accredited projects far exceeded the maximum degression threshold so the Westminster Government has cut the principle FiT subsidy for wind turbines by one fifth, setting degression at 20%.

Canny developers have reacted by seeking to ‘lock in’ FiT benefits at 2013 levels to avoid degression applying to their projects. However, experts at CKD Galbraith advise that in order to keep the higher subsidy levels, among other conditions, the developers need to ensure their turbine is commissioned within 12 months of the pre-accreditation date.

According to Mike Reid, Head of CKD Galbraith’s Utilities Department, a further threat to FiT qualification is a delay on the part of those involved in projects to secure wayleave, or more commonly servitude, rights across neighbouring land.

“Developers have had to pay for their grid connection in full in order to qualify for pre-accreditation but payment doesn’t ensure the necessary rights exist to connect their wind turbine to the grid over land in third party ownership,” said Mr Reid, an authority on wind farms based at the Firm’s Cupar office.

“Time is of the essence for developers to secure the necessary consent for their project and that puts landowners in a strong position because the clock is ticking for developers who are under pressure to secure FiT benefits before the lion’s share of their subsidy payments reduces by at least 20% for the next 20 years.”

Often the only way for developers to secure a development is to sit around the negotiating table and thrash out a settlement suitable to all parties. “We have seen settlements at more than 10 times the original offer from the developer,” said Mr Reid. “But there needs to be a benefit in the deal for both parties and it is important to know the value of the rights to be granted, and that is where we can advise on an appropriate settlement.

“It is also important for Landowners not to focus on the financial aspects alone” continued Mr Reid “as the rights granted could have a detrimental long term impact for the Landowner and this also needs to be properly assessed before any agreement is concluded.”

Under the FiT, 20% degression will apply for all wind turbines commissioned after 1 April 2014, unless pre-accredited, but further cuts are inevitable as demand is likely to exceed the FiT degression thresholds primarily due to delays in the planning system and with grid constraints. According to Mike Reid: “Further reductions are inevitable as the Westminster Government seeks to control renewable subsidies and, it could be, within a few years the potential returns will result in no new FiT wind turbine projects being brought forward unless component and construction costs are reduced. Development decisions may also be influenced by opponents of wind power, who become ever more vocal.”

Taking a longer term view is all the more difficult when considering the possible delays in obtaining planning consent and grid connections for some sites.  Projects cannot obtain pre-accreditation to lock in to tariff rates until planning consent has been obtained and the grid connection has been paid.

Read about degression rates and energy news and views in the spring Energy Matters e-magazine, published by CKD Galbraith.

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