Thursday, August 22, 2019

Large-scale solar back on track for rural estates

May 1, 2019 by  
Filed under News & Business

Developing solar parks is once again becoming viable – particularly for larger landowners and rural estates looking to invest, claims a group of industry professionals.

Although the government effectively killed off the large-scale solar industry when it closed the Feed-In Tariff and Renewable Obligation to new schemes in 2016, the cost of the technology has since dropped dramatically.

This means investment in a larger solar parks is once again worth considering, says Hugh Taylor, chief executive at independent power and energy consultancy Roadnight Taylor.

“The cost of solar installations has declined by a third since 2016, while revenues from wholesale electricity have increased by more than 80%. With the technology now proven and reliable, we are entering a period when subsidy-free, utility-scale solar is viable once more.”

Landowners well-placed

A growing number of large corporate organisations are seeking to buy their green energy direct from owners of big renewables plants, so there are opportunities for landowners to meet these needs, says Mr Taylor.

“While there are some big installations programmed for 2019/2020, many proposed schemes are not yet feasible for traditional solar investors – but given the cost of land rents and the premiums developers charge to investment funds, those with their own land are well-placed.”

By securing borrowing against land, it is possible to get low rates of interest, says Mr Taylor. “If you pay for the grid connection and planning application yourself, then there is no need to pay a premium to a developer,” he adds.

“It makes the whole project considerably cheaper, and returns of 5-7% are feasible. Rather than going straight into a lease with a developer, some clients are investing further into the project, from grid and planning costs to potentially owning or co-owning the whole scheme.”

Appetite for lending

Karl McConville, national director of landed estates at Barclays Agriculture, says banks have good appetite to lend into the farming and renewables sector. “Typically landowners have strong security and established businesses with long-term plans – the default rate is extremely low.”

So what do banks need to know to finance such a project? “We need a budget – including a contingency fund – with likely returns over the life of the loan so we can see how it will be repaid,” explains Mr McConville.

“We want a trading background for the wider estate to prove it’s a solid business, assets as security, and to know the team you’re putting in place to bring the project to life. It’s important that you have a strong team with good credibility and background.”

Loans for solar parks will typically be set over 10 years, and long-term fixed rates are at historic lows, he adds. “From a rates perspective now is as good a time as it’s ever been to take out debt – but you must have done your due diligence.”

Farms and estates which can use the electricity themselves can generate even higher, double-digit returns. But it is important to get an independent specialist to accurately model half-hourly net demand to ensure the installation is appropriately sized, warns Mr Taylor.

Tax benefits

In addition, there are tax benefits to be had by investing your own money, says Andrew Vickery at head of rural at Old Mill. “From an inheritance tax perspective, trading activity is preferable to rental, as the estate is more likely to qualify for Business Property Relief.”