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24 Feb 2020

Farm diversification into energy: the options and returns

ROADNIGHT TAYLOR LTD Stand: 160
Farm diversification into energy: the options and returns
Farm diversification into solar can bring lucrative lease revenues
Now has never been a better time for farmers and landowners to seek diversification incomes from leasing their land to energy schemes. But landowners are urged to act quickly and proceed with caution.

Now has never been a better time for farmers and landowners to seek diversification incomes from leasing their land to energy schemes. But landowners are urged to act quickly and proceed with caution.

Wind, solar, gas and battery storage can all provide good ground rent opportunities for landowners with the right sites. With all scales from 2MW to 50MW now viable – from gas gensets on a quarter of an acre connecting at 11kV, to solar on 200 acres connecting at 132kV – landowner’s chances of getting an energy scheme are greater than ever.

Income opportunities from energy schemes

Ground rents will vary depending on many factors, including grid connection costs, planning prospects and how safely and effectively the site is marketed.

Solar farm developers are keenly looking for sites of around 40 to 200 acres. Depending on their site, landowners can expect ground rents of around £800 per acre for solar leases of 30 to 50 years.  This means a large-scale solar scheme can offer over £8m in lifetime ground rent.

Gas genset and battery storage schemes have a smaller land take of under two acres. Gas gensets can return up to £150,000 per year and battery storage, a trickier market, over £50,000 per year.

Act independently and quickly

Any energy scheme needs rights to connect to the electricity grid. Pockets of grid capacity are available in most parts of the country, but headroom fluctuates constantly across the UK.

If capacity becomes available on a part of the network, it will only be enough for one scheme. If a landowner doesn’t secure that capacity quickly, a neighbour will. But, don’t be chased into signing a letter of authority with the first developer that knocks at your door.

Developers have become more focused on single technologies targeting a narrow range of grid capacities and connection voltages. If you sign with a single developer, they may specialise in the wrong technology for your grid connection opportunity, which significantly reduces chances of getting a scheme.

Landowners can’t go on to attract the best terms and rents from competing developers if they sign with a single developer before achieving grid connection rights.

Self-developing and owner-operator energy scheme options

As well as being a landlord, where landowners receive a rent for hosting an energy scheme, other possibilities are coming to the fore. Some entrepreneurial landowners are securing grid rights and planning consent, and then selling this bundle to developers. While this offers high financial rewards, it requires a significant financial outlay.

Other landowners are securing project rights, funding the construction and then owning and operating the scheme to gain long term revenues from power purchase agreements (PPAs). This option requires the biggest financial commitment, and the relatively skinny returns on investment are not for everybody.

Both these approaches are higher risk and should only be undertaken with the benefit of appropriate, independent expert advice.

To find out if you have a realistic opportunity for power scheme sites to lease to developers and/or if you are interested in becoming a self-developer or owner-operator, call Roadnight Taylor on 01993 830571.

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