Wind Power Continues Its Advance In Scottish Market

Rental income from wind farm developments increased by 20 per cent in 2012, according to research by CKD Galbraith.

The rise in agreed base and turnover rents paid to landlords in the 10 years from 2002 to 2012 was 320 per cent, the study also found.

This most recent increase in rents appears to be primarily due to competition among developers for a reducing number of suitable wind farm sites. On 30 April 2013 the planning framework for potential for wind farm sites in Scotland became significantly less favourable when the Scottish Government published its Main Issues Report on the National Planning Framework 3 and revised Scottish Planning Policy. The Scottish Government has proposed identifying 'core areas of wild land character' which need to be given significant protection from wind farm development under Scottish Planning Policy. It is seeking views on this proposition as part of its consultation on National Planning Framework 3 and a revised Scottish Planning Policy.

Due to the timescales involved with wind farm projects this announcement will jeopardise any potential wind farm developments in the provisional wild land areas some of which have already been subject to many years of surveys and research and may also intensify the development pressure on other suitable sites across Scotland.

That said, Scotland is continuing its advance in wind-powered electricity generation, according to CKD Galbraith's Energy team. The Firm ascertained that 18 wind farms became operational during 2012, providing an additional installed capacity of 783.33 megawatts (MW). This, added to existing installed capacity, means that Scotland has 5.8 gigawatts of onshore wind power potential*. East Renfrewshire, Perth and Kinross and South Lanarkshire saw the biggest increases in installed capacity, with 220.8MW, 156.4MW and 108MW added respectively. These increases were primarily due to large sites coming on line, such as the Clyde Wind Farm in East Renfrewshire, Griffin Wind Farm in Perth and Kinross and Whitelee Phase 1 in South Lanarkshire.

The Highlands retains the highest output around 650MW installed capacity, with a further 650MW approved or under construction and another 1,177MW submitted to planners for approval. The region is favoured by developers for its wind resource and a new grid connection on the way.

As rents increase, so too is the timescale to agree lease terms as landowners are taking time to ensure they maximise financial return, minimise exposure to planning consent conditions, protect their assets physically and take appropriate tax advice prior to entering into any agreement. Developers, whilst seeking to minimise outlay costs, want to ensure the smooth running of their wind farm throughout the lease term and are keen to obtain opportunities to develop good productive sites while ensuring the terms agreed are acceptable to their funders.

Whereas codes of practice for sporting rights are commonplace, CKD Galbraith has seen similar codes of practice, such as a framework for heather burning, emerge as well as developments in how habitat management plans are implemented and the impact of felling trees for wind farms in accordance with the Scottish forestry policy for renewables.

Given the difficulties developers face in obtaining planning consent, CKD Galbraith has also noted an increase in the number of applications for extensions to existing wind farms, largely because the visual impact already largely exists for local communities and the infrastructure is already in place.

On 1 April 2013 the Government reduced the Renewable Obligation Certificate subsidy payable for onshore wind farms by 10 per cent for new registrations which, on the face of it, creates uncertainty about the future of renewables support. However, the Firm has yet to see any noticeable reduction in demand for renewable projects as a result. The Government is anticipating the shortfall in the ROC subsidy will be compensated for by higher electricity prices with wind farm turnover remaining relatively static for new schemes so the outlook for the large-scale wind market remains positive but whether this happens in practice remains to be seen. Developers' profits have been squeezed slightly but not enough to prevent them progressing with more projects than ever before.

Small-scale renewables, on the other hand, could be significantly affected when annual degression commences in April 2014. Preliminary accreditation is intended to offset degression by allowing landowners and developers the opportunity to secure a feed-in tariff (FIT) at the date of application, provided planning consent and a grid connection have been obtained. But the uncertain lead-in time for delivery and construction of turbines may exceed the 12-month accreditation period. Due to the time taken to obtain planning consent and a grid connection even with preliminary accreditation the FIT rate received could be significantly less than anticipated at the start of the project.
"Whilst the outlook for large-scale wind farms remains positive, prospects for small-scale schemes therefore appears less certain," said Mike Reid, Head of Utilities at CKD Galbraith. "As planning authorities deliberate over applications for months, sometimes years on end, the feed-in tariff will continue to reduce until future projects may not be financially viable.

"However, with predictions that electricity prices will rise, landowners and developers can be expected to continue to benefit from renewable projects, but whether increased energy prices will be politically acceptable remains to be seen. Furthermore, for those intending to generate electricity to power their holding, then a wind turbine is and will continue to be a viable option in the short term, as the current support system is still giving attractive returns and an increase in energy prices will only help this."

For further information please get in touch with Mike Reid on 01334 659 984 or email on mike.reid@ckdgalbraith.co.uk

*Renewable UK