The proposed cuts to the UK solar feed-in tariff for large scale energy producers has been met by angry reaction from the industry who believe it could prove disastrous for fledgling solar projects. The plans are for the tariffs to be cut for more large scale solar projects such as those being set up on large solar farms or on the roof space of commercial buildings. The government has made efforts to distance itself from these more industrial scale solar projects and has instead publicly favoured micro-generation solar schemes for households and local communities.

The solar feed-in tariff works by offering guaranteed, premium rates for renewable energy both used and fed back into the grid by small scale renewable energy producers. The aim of this mechanism is to encourage investment in this once expensive industry by offering the opportunity of both long term revenue generation and savings on utility bills for households. Ernst & Young who have perennially made the connection between attractiveness for investors and the strength of feed-in tariffs believe that proposed changes to the mechanism at this point could be disastrous. Ben Warren, a partner of Ernst & Young commented that,

“The whole investor market was totally disengaged as a result of the feed in tariff being ripped up,”

Certainly the correlation between the strength of the UK tariff and the potential for investors to put their cash into solar projects in this country is significant and the warning from other countries is that where tariffs are rolled back, the solar industries in those countries fail as a result shortly after. Proposed government plans currently subject to lengthy consultation are for reductions of tariff payments for solar installations falling within the 250kw to 500kw bracket. This will affect larger scale schemes such as proposed solar farms based in the West Country where large areas of agricultural land are being set aside for the installation of solar pv systems.

The basic idea behind this plan is that more subsidies which essentially come from UK energy consumers are fed into projects which benefit the whole as opposed to wealthy investors looking to make a quick buck from solar farm investments. The move will certainly fall into Cameron’s cosy idea of a ‘Big Society’ whereby community projects, social housing and local services will all benefit from the revenue which will potentially be generated by tapping into renewable energy. Government spokesman Greg Baker said that he was keen to,

“Make sure that we capture the benefits of fast-falling costs in solar technology to allow even more homes to benefit, rather than see that money go in bumper profits to a small number of big investors”.

With many South West farmers looking to capitalise on the opportunities from renewable energy, Sonya Bedford from Stephens Scown looks at some of the key considerations you should make before rushing into an agreement for a solar park:

• Despite relatively tight timescales, don’t give into pressure and make sure you take proper professional advice before entering into a binding agreement.

• Be aware that some terms on offer are quite miserly – we’ve seen an option fee as low as £100 quoted. The commitment will be for a 25 – 50 year Lease (or possibly even an outright sale) and should not be entered into without proper remuneration.

• Bear in mind that it’s desirable not only to receive a simple rent under a Lease for your land, but also to obtain a share of the revenues from the sale of electricity generated on the site. You may also be able to negotiate an electricity supply for your own property, often for no cost.
• Be aware of any other development you might want to carry out on your land. Often leases and option agreements will include restrictions on developments adjacent to the site and which could have an effect on the performance of the solar PV arrays.
• Ask who will remove the equipment at the end of the lease and to what extent will it be removed at all?
• Seek professional advice about the potential tax implications. You may already have plans for mitigating Inheritance Tax, but granting an Option for a ‘solar park’ will impact on that, with reference to (where you are a farmer) the removal from agricultural use of some of your land.
• Consider the implications on any stewardship schemes you have in place – consent from Natural England will need to be obtained
• And if your land is mortgaged to a bank you will need to get consent to enter into long leases or sales.

Having said all this, there are exciting opportunities in the Westcountry where the solar resource is at its greatest and such opportunities should be seized, with a view to converting them into a 25 year income stream.

Sonya Bedford is Head of Renewable Energy at Stephens Scown. Visit www.stephens-scown.co.uk to download a specialist guide to solar energy for farmers or call 01392 210 700.

Last Friday (24^th September) news broke on the Coalition government’s decision to back down on their promise of retroactively granting the feed-in tariff to 6000 ‘pioneers’ who installed PV before the feed-in tariff was announced.  This is undoubtedly unfair since those pioneers were responsible for keeping some semblance of a UK PV industry alive in recent years whilst the industry was booming elsewhere in Europe.  In light of the government’s austerity measures however, I do not consider it an outrage that these few people are denied the FiT.  Early adopters of renewable energy are unlikely to be in the lowest paid income bracket and at a time when many public sector workers face redundancy the government can argue that they have more pressing issues to deal with.

What is concerning however, are unconfirmed reports that the government is thinking of changing of lowering the feed-in tariff before April 2012.  This would be extremely unwise.  Feed-in tariffs are a success because they offer investors (whether banks or families) some foresight as to how much they stand to make. Solar panels are very much a long-term investment, and feed-in tariffs work because you can predict how much you will earn in year 25 of the investment as well as in year 1. Therefore, by changing the planned feed-in tariff degression schedule at short notice, investors lose confidence very quickly. How can a homeowner plan to have a PV installation when the feed-in tariff could be lowered in a month? How can a PV installation company forecast its installation schedule and hire someone if the feed-in tariff is to be changed next month?

Feed-in tariffs are designed to be significantly reduced every year – that’s to reflect decreases in the installed cost of PV systems and ensure that investment returns remain broadly consistent. Everyone knows that the feed-in tariff in the UK is due for its first degression in April 2012, but suddenly changing that schedule will disrupt innumerable business plans and threaten jobs. The feed-in tariff is designed to be decreased, I have absolutely no problem with that, in fact it probably didn’t need to be as high as it is to start with. The problem is only with unscheduled decreases as these cause havoc with the industry.  The UK already has an extraordinarily tiny PV industry in comparison with other major European countries.  By threatening to deviate from the planned degression schedule only 4 months into the scheme threatens to de-rail the beginnings of an industry that could employ tens of thousands of people in the UK.  Already this year the number of installations has dramatically increased as a result of the feed-in tariffs. However, the UK is forecast only to install around 15MW this year. This pales in comparison to Germany’s expected 8GW – its a factor of 500 difference!!

It is possible to build in flexibility into a feed-in tariff policy that controls market growth without causing surprises. In Germany, the annual feed-in tariff degression is now tied to the market size in the previous year. That means if the market is over a certain size then the degression will be more than normal, and if the market is smaller than targeted the decrease for next year will be less.  The UK government have not said anything about their intentions for April 2012. They would be well advised to start thinking about it now, rather than waiting until the last minute as they did before the feed-in tariff was introduced.  Using the German model, feed-in tariff policy could be set until the next general election, this would stand the UK in good stead.

No-one wants a boom-and-bust industry. The UK government should take measures now to reassure the industry that it is following an organised and planned strategy.  Rumours of sudden changes, whether real or imagined, could do more damage than many realise.

Since the feed-in-tariff came into place in April there have been a large number of companies looking to sign up land owners to option agreements to build solar famers on their land. Now this can be an excellent way for a farmer/land owner to maximise the income they generate and also to diversify their income. Typically the option will be a rental agreement lasting for 25 years where a fixed fee is paid or a percentage of the FIT is offered. The yield will almost always be multiples of what could be made by farming the land sounds great so where is the catch?

The catch is that the site has to be built and producing energy by March 2012 to be viable, so with planning timescales this means you have just one chance with one company to generate this income. Some of the companies out there signing land owners up don’t have any intention of building the sites instead they are looking to get the option agreement signed and sell it on to a company with the infrastructure in place at a profit. This means if they don’t manage to sell the option on the site will not be built and the land owner will miss out on this once in a lifetime opportunity to benefit from the feed in tariff.

So what should you look for?

Proof of funding is the most important element. If a company contacts you and the cannot prove they have funding in place do not deal with them. Whatever they offer you is irrelevant as they don’t have the means to build the site. I would also ask whether the company providing the finance (generally investment bank etc) has invested in green energy before and if they have any other solar projects up and running. This reduces the risk of funding being pulled at a later stage.

Next most important is which company is building the site and what experience do they have in large scale solar farms? Ensure the company has experience in building solar farms and preferably as some running effectively in other solar markets such as Spain or Germany.

Ensure the company has experience in dealing with planning issues on renewable energy. This is important with the tight time scale of the FIT . Once again you have only one shot at getting the site built on the land and you want someone with experience to ensure the process runs smoothly.

Finally look at what the companies are offering you financially, dependant on where you are in the country and grid connection costs a rough guideline is between £500-£1000 per year per acre. If the company offers much less than this you are being short changed. If the company offers much more than this alarm bells should be ringing as the project is unlikely to be viable and therefore you may miss out on your chance to utilise the FIT.

We work with a company who have everything in place to ensure a smooth solar farm build. If you would like any further information please email me at elliot@solarfeedintariff.co.uk