Wind Farm Extensions: The Ultimate Guide

Are you approaching the end of your wind farm lease and wondering what’s next? I’ve put together this comprehensive guide on wind farm extensions to help you navigate the renegotiation process with confidence.

As the end of your wind farm lease approaches, it’s time to make a key decision about the future of the renewable energy project on your land.

Although this process can seem daunting, it actually opens up a world of new possibilities.

Over the time that your previous lease has been active, the industry has well and truly moved on.

As a result, there is a lot more information available to help landowners like you get the best possible deal for the renewable energy projects on their land.

Whether you want to seize the day and get more bang for your buck with payment arrangements or move the project in-house, there are more options than ever.

I’ll walk you through every stage of the renegotiation process, sharing expert tips to ensure you get the best outcome. I’ll also keep you updated on the latest trends in wind farm extensions so you can stay ahead of the curve.

Contents

What Are Wind Farm Extensions?

Planning Permission Woes – What Are the Chances of Getting It?

Current Trends in Wind Farm Extensions

Key Wind Farm Extension Contract Negotiation Areas

Best Practices for Your Wind Farm Extension

Key Dos and Don’ts for Wind Farm Extensions

Tax Implications of Your Wind Farm Extension

Frequently Asked Questions

Conclusion

What Are Wind Farm Extensions?

A wind farm extension might sound intimidating, but it’s essentially the process of:

• Renewing an existing lease after it expires
• Repowering a wind farm by replacing the old turbines on the land with better and more efficient models

In both cases, you may have the opportunity to pull more income from your site (which is always a plus).

What are the benefits of repowering or extending your wind farm?

The main benefits of repowering a wind farm relate to the increased power that’s generated from a single site.

While it can be relatively expensive, repowering wind farms can increase electricity generation from your site by up to 170%.

And with more energy supplied to the grid, there’s a greater chance of increasing your project’s profits – and, in turn, your income.

As this process can result in fewer turbines than before, it’s also a chance to free up a proportion of your land.

What happens if I want to bring my project in-house or change operators?

If you’re planning to bring your project in-house, then there are a few things to think about.

1. Changing site operators

We get that it’s not always possible (or beneficial) to stick with your current site operator.

If you’re considering changing site operators, ensure you’ve opted out of the Landlord and Tenant Act 1954 for the flexibility to approach anyone who takes your fancy.

With a successful project at your fingertips, you can review all proposals and just choose whoever fits best.

You’ll still need to give your current operator valid notice to leave and continue to adhere to the terms of your existing lease.

But otherwise, you’re free to end your working relationship and move on to greener pastures.

2. Bringing a project in-house

If you’re planning to bring a project in-house, you’ll need to start your journey by looking for equipment suppliers. You’ll also need to consider the wind farm’s build and long-term maintenance.

Once you’ve chosen a supplier and secured an electricity off-taker, you’ll give notice to your current operator and be ready to go.

Planning Permission Woes – What Are the Chances of Getting It?

Before Labour’s announcement regarding onshore wind in July 2024, planning permission was extremely difficult to get.

With so many restrictions from local councils (and the public), getting wind farm extensions approved was often a difficult task.

In many cases, authorities likely granted planning permission for up to 25 years for an initial project. However, these permissions may not have been extended, which was always something to bear in mind.

Now, with planning permission rules relaxing, it’s hoped that this will boost the potential for both new wind farms and extensions.

This is great news as new stats suggest that over 74 per cent of Britons are now in favour of onshore wind.

Repowering is typically seen as an easier route for many landowners and developers. However, even with looser planning guidelines, submitting applications for approval remains a time-consuming and stressful process.

But whether you’re looking to mount a new project or repower your site, the relaxed planning rules should make these processes less of a headache. Of course, we’ll all need to see how these new guidelines play out in practice. That said, I’m certainly optimistic about the future of clean energy in the UK based on what I’ve observed so far.

Current Trends in Wind Farm Extensions

If you are considering a wind farm extension, you should be aware of a few of the current trends in wind farm extensions that can help landowners like you secure a better deal.

One of the major things I’ve noticed in recent years is that a mind-blowing 85% of landowners are offered less at renegotiation time. To avoid falling foul to a poor deal, it’s worth comparing your site against similar ones in the UK. Our Lumify SiteScan™ solution will benchmark your site’s payment rates and energy type against others around the country. So, you’ll have all the data you’ll need to negotiate a good deal.

It doesn’t matter whether you’re an independent or institutional landowner – these factors should be considered before extending any project.

Extended lease durations

The most common trend I’m seeing at the moment is an extended lease duration.

Although 25 to 30-year leases used to be commonplace, the rise of 40 or 50-year leases are popping up across the country.

While a longer lease can offer more long-term income and stability, it can also bring more planning requirements and considerations for landowners. They may also face less flexibility down the line.

With that in mind, you’ll want to carefully weigh the benefits and potential drawbacks before committing to any extension.

Unanticipated changes

With longer leases, there’s always a chance that unexpected changes could arise over time. These changes could be in the market, related to regulations or to do with project conditions.

That’s why it’s important to build an inflationary factor into payment clauses. This will protect your financial interests, ensuring your payments keep pace with rising costs.

If you think it’s more viable to bring your project in-house, you’ll have the flexibility to discuss this when your lease is coming to an end.

Greater understanding of the market

Over the years, I’ve noticed that landowners are becoming more acutely aware of the current market.

This doesn’t just mean understanding how other sites are operating, but also gaining a broader understanding of the entire landscape and how it’s evolving.

As it’s likely that rents have risen considerably and technology has improved since your last lease was signed, you don’t want to miss a thing.

Landowners have had great success using Lumify SiteScan™ to provide an overview of current market data.

It’s a huge benefit for landowners who want to benchmark their site’s value and should give you the help you need to secure an excellent deal.

Option agreements

We had previously seen a major rise in option agreements with the anticipation of the relaxation of planning laws in the UK. But we expect to see even MORE agreements happening with Labour scrapping the previous de-facto ban on onshore wind on the 8th of July 2024.

Option agreements are a way for developers to bookmark a viable spot for wind energy in anticipation of building a new project.

Of course, only time will tell how quickly planning rules will relax in practice. However, we’re hoping Labour’s commitment to boosting wind capacity in the UK will usher in a whole new era for renewables in the UK.

Reducing the number of turbines in an area

One of the major trends I’m seeing for wind farm extensions is a reduction in the number of turbines on a single site.

This is because modern single turbines are now able to generate more energy than two smaller turbines.

And you can thank the larger rotors and blades for that.

Throw in the curved tips that efficiently harness wind energy, and it’s easy to see why larger turbines are taking over the UK’s wind scene.

Key Wind Farm Extension Contract Negotiation Areas

The lowdown on payment arrangements

With any lease for wind farm extensions, one of the first things to think about before signing a new contract is your payment arrangement.

There’s no right or wrong way to approach this.

But you’ll want to make sure the payment terms work for YOU as a landowner.

Because realistically, getting fair and appropriate compensation for use of your land should always be part of the deal.

Before you make a final decision on the future of your wind farm, it’s important to understand the revenue potential of your land.

Rents will have increased significantly over the years, and the last thing you’ll want is to feel as though you’re getting a bad deal.

If nothing else, the rent you negotiate should at least match what other landowners are making for similar projects.

The different payment arrangements you’ll need to consider are as follows:

• Fixed rent: Where you’ll receive a set payment regardless of the project’s performance.
• Turnover rent: Where you’ll receive rent based on the site operator’s income or the overall turnover of the project.
• Hybrid rent: A combination of fixed and turnover rent that guarantees a minimum rent payment and a bonus.
• Multiple outputs or generation rent: Where rent is received based on the amount of electricity a site produces. This is then multiplied by a fixed value.

There are distinct pros and cons to each option and the arrangement you go with will depend largely on your tolerance to risk.

For landowners who don’t want to keep a close eye on payment accuracy or calculations over time, fixed rent is ideal.

If you’re financially savvy and want a greater stake in the project, other payment arrangements may yield more.

Whichever option you end up choosing, it’s always wise to have a decent idea of current market rents before negotiating a fair rental price, as your site operator won’t be able to argue with cold, hard facts.

This will help you make crucial decisions, as you’ll have the facts and figures right up your sleeve.

Want a better idea of how other sites across the country are performing in comparison to yours? Lumify SiteScan™ is your answer.

Negotiating with the current industry in mind

When considering extending your current wind farm lease, it’s important to plan strategic negotiations that take the evolving renewable energy landscape into account.

Most modern leases can last up to (and sometimes over) 30 years, which means the industry could have changed significantly since your last negotiation.

Keeping these changes in mind can help you secure more favourable terms that align with the future of renewable energy.

Lease expiry and renewals

You may be trying to tie up loose ends before your contract draws to a close. But you don’t want to let it lapse due to poor timekeeping.

By letting your lease end without a formal extension contract, you could put yourself in a weaker negotiating position.

If your lease agreement lapses without an agreement in place, you may come up against the following challenges:

• Having limited options as you scramble to form a last-minute plan.
• Without a new contract, there may be uncertainty about the ongoing terms and rules.
• If you haven’t opted out of the Landlord and Tenant Act of 1954, you might face automatic renewal conditions that may not be in your favour.
• No inflationary factor if this wasn’t previously built into your lease.

Types of tenancies upon lease expiry

If you have no formal contract in place by the time of your lease expiry date, you’ll need to consider the types of tenancy you’ll be up against:

• A Tenancy at Will may kick in where a tenant remains on the land with the landlord’s consent.
• Otherwise, you’ll be dealing with a periodic tenancy with no defined end date.

While a good relationship with your site operator can mitigate some issues, letting your lease lapse means you might lose bargaining power, giving your site operator an advantage.

So, be sure to come to Lumify Energy for expert advice, familiarise yourself with your lease, and chat with your site operator in advance.

This way, you can decide what you both want from the project in question before your lease lapses.

Considering the future: decommissioning

When your wind farm reaches the end of its financially viable life, it’ll be time to decommission it.

But exactly who is responsible for sorting this out?

Before you consider your wind farm extension and the contracts associated with it, it’s key that you outline what will happen when your project is eventually decommissioned.

This is typically handled by site operators but you’ll certainly want to record who’s going to be responsible for what; for example, removing tower structures.

You’ll also need to outline who’s responsible for footing the cost of returning your land back to its original state.

If you don’t, you might get quite the headache at the end of your renewed lease.

Local authorities putting contracts out for tender

We discuss putting contracts out to tender in a great deal of detail in our wind turbine lease considerations blog.

But as this process is incredibly important, we’ll briefly run you through it here.

The main thing to remember here is that local authorities will always try to optimise any contracts given out to them.

So, local authorities will usually put all contracts out to tender before a developer is chosen for a specific site.

This process doesn’t usually apply to landowners as it’s a local authority-specific process that isn’t usually required for smaller or existing projects.

However, we always think it’s worth watching out for developments in the industry to keep yourself abreast of any changes.

Regardless of the things you need to consider, it’s always important to plan ahead and have ample knowledge of the current market.

Coming to the table with a plan puts you in a strong negotiating position, but it’ll also help you avoid any classic pitfalls.

Which is never a bad thing.

Other legal considerations

I’ve briefly touched on the Landlord and Tenant Act of 1954.

But I want to reiterate just how important it is for landowners.

Although you’ll only need to pay particular attention to sections 24 to 28, I highly recommend that you OPT OUT of these.

Essentially, this act gives site operators the legal right to stay on your land if you’ve not opted out. This gives you fewer options at the end of the lease, and this you’ll want to avoid.

Opting out puts you in a far stronger negotiating position and allows you to maintain complete control over your land’s future use.

Why opting out is beneficial:

• Control over terms: You can decide if you want to keep the current site operator on the land and continue with the status quo or make changes, such as increasing rental rates or removing the site operator entirely.

• Avoid compensation fees: Without opting out, you can only remove your site operator if they’ve breached their contract in some way. Otherwise, you may face a hefty compensation fee, which you’ll want to avoid.

Even if you’ve opted out of this act, you still need to give your site operator notice to vacate. This is typically six to 12 months with most contracts.

So, keep this all in mind before heading to the negotiating table.

Best Practices for Your Wind Farm Extension

By now, you’ve likely built a solid relationship with your operator, but the contract renegotiation process can still feel daunting.

Don’t worry – with the right tools, you can equip yourself with all the information you need to succeed.

1. Use current market rents

The first thing you should think about is gathering information on current market rents.

Site operators will probably only know about rents for sites within their portfolio. So, by having information about similar sites across the country, you can gain a significant advantage at the negotiation table.

With solid facts and figures in hand, you should be in an excellent position to increase your rent.

And as the market will have changed significantly in the 30 or so years since you first signed a lease, it’s well worth doing.

It’s always worth working a mid-lease option into your contract, as this gives you the opportunity to renegotiate terms as the market changes.

Most mid-lease options give you the chance to better align your payments with current market rents.

To realise the full potential of your project, it’s worth reviewing your lease to check for a mid-lease option that may not have been executed.

If it hasn’t this could offer more leverage for negotiations in your favour.

2. Demonstrate the value of your site

Knowing the net present value (NPV) of a site helps landowners achieve a target rate of return from any project.

By getting an idea of your site’s income potential, you can discuss your goals more clearly with your site operator.

Can you:

• Obtain a breakdown of electricity generation
• Identify a shortlist of similar sites
• Forecast future costs?

Any information you can gather will help to strengthen your position during negotiations.

Make sure you review your current contract and historic payments to date. In my experience, up to 80 per cent of wind farm payments are completely inaccurate.

This means that landowners are inadvertently leaving money on the table (which can amount to thousands of pounds).

If you’re not quite sure how to do this, the Lumify SiteView360™ is a stellar place to start.

Not only will you be able to review all of your historic payments, but we’ll even provide a breakdown of your site’s performance.

So, if your payments need to be adjusted, we will arrange for them to be corrected.

3. Be aware of lease dates

We’ve already discussed why you don’t want to let your lease end without a strong plan in place.

Luckily, you can avoid this pitfall by being fully aware of lease end dates and creating a solid plan for renewal.

In my experience, most site operators are reasonable people.

So, they should respond well to a step-by-step plan that you both can follow in the last few months of a lease.

The most important thing you can do is get yourself and your site operator on the same page for a smooth transition.

4. Consider your financial terms carefully

This is an overarching point that applies to all renewable energy projects, but it is especially important at this stage.

It’s crucial to consider your terms carefully.

For example:

• Will a wind farm extension affect livestock around your site?
• Will you get compensated fairly?
• Will inflation wreck your chances of increasing profits?

These are all crucial details that need to be clearly outlined in a new lease, so take the time to thoroughly review your financial terms to avoid any future pitfalls.

Whether you’re a seasoned negotiator or feeling a bit unsure about the process, most landowners are naturally in a strong position. And by backing up your terms with solid facts, figures, and a little help from experts like us at Lumify Energy, you’ll be set up for success.

Key Dos and Don’ts for Wind Farm Extensions

When it comes to wind farm extensions, there are a few do’s and don’ts that you should consider.

With the help of experienced experts, you’ll be well-prepared, but you can also help yourself by following a few simple steps:

DO

• Document everything: From detailed meeting notes to concerns about contract wording, noting down everything you discuss during negotiations is essential.

• Check your terms: Whether that’s taking account of inflationary terms or discussing appropriate payment terms, you should leave no stone unturned.

• Carry out a land audit: Conduct a rent audit to ensure payments have been made correctly and to avoid waiving your right to compensation.

• Know what your responsibilities are: Ensure you understand your responsibilities under the new lease and confirm that your site operator is aware of theirs as well.

DON’T

• Lose track of time: One of the most common pitfalls we see during a wind farm extension negotiation is simply running out of time. Try and set aside at least a year to correct lease errors, serve notice, and obtain planning permission.

• Be unsure about who’s signing the new lease: It’s important that you know who’s actually signing a new lease when it comes to renegotiations. Whether it’s a new company or an existing site operator, knowing who you’re dealing with will help you lay out relevant responsibilities clearly.

• Fail to negotiate financial terms: Remember, as wind farm projects will be on your land, you should be adequately compensated through rent and performance payments. It’s also worth thinking about the funds you’ll need to set aside to pay experts during the renegotiation process.

As long as you approach your renegotiation with enough time to prepare, you should avoid any major hurdles.

Tax Implications of Your Wind Farm Extension

If you’re a landowner looking to extend your wind farm, you may be wondering what tax implications you could face.

Typically, wind farm extensions would impact landowners in the following ways:

1. It could force you into a higher tax bracket

The first thing you’ll need to think about is whether a wind farm extension could push you into a higher tax bracket.

With a successful renewable energy project comes profit.

And it’s quite easy for landowners to slip into a higher bracket if a year is surprisingly profitable.

This isn’t a negative thing, but it can be complex if you’re trying to manage your income to avoid paying hefty taxes.

2. It might impact inheritance tax

Another thing to consider is whether your wind farm could impact the inheritance tax your family receives.

It’s possible that you’ll be taxed if your assets are in your name at the time of death, but this can be minimised if you take a few simple steps.

Now, it’s always worth consulting an expert when it comes to the nitty gritty around inheritance tax. But placing wind farms in the name of children or using a partnership share can reduce the amount paid.

3. You’ll need to think about capital allowances

If you’re wondering how the financial viability of a project could play out if you were to bring a project in-house or self-develop, you should think about capital allowances.

When starting your own wind farm, the expenditure on turbines, rotors, and blades will all benefit from allowances and deductions.

So, it’s always worth investigating if you’re planning to bring your project in-house as it could save you a pretty penny on capital costs.

4. There may be VAT to consider

With any large project, there’s always VAT to consider.

If the land is liable for VAT then the rent payable may be liable for VAT. This is quite rare, but it’s always worth thinking about.

Often, VAT registration will be present before any trading starts and any tax payable will need to be covered.

This is why it’s important to confirm who VAT invoices should be made out to before the wind farm extension has taken place.

FAQs

What are the main challenges landowners face with wind farm extensions?

In my experience, the main challenges that landowners face with wind farm extensions are:

• Uncertainty when projects are sold: Soon after extending, projects are often sold to other companies. In these cases, landowners can feel unsure about what their new tenants will be like.

• Planning permission (even for extensions): Planning permission can be extremely difficult to get these days and we understand the pain.

• Rent negotiations: It can be tough to find out what current rents are and what rent values to negotiate for. That’s where Lumify SiteScan(™) comes in, providing the cold, hard data to back up your negotiations.

• Losing out on land at renewal: I have seen some cases where wind farms are downsized with larger turbines, leaving landowners short-changed.

We’re hoping that planning permission will be far easier to achieve under Labour’s new planning policies which were announced in July 2024. However, we completely appreciate that the planning process can still feel like a minefield – even without major obstacles standing in the way.

How much does it actually cost to run a wind farm?

Whether you’re completely new to wind energy or are trying to navigate a wind farm extension, you will want to know more about running costs.

From maintenance and equipment expenses to the building of access roads, when running a wind farm, costs can very quickly add up.

Oh, and that’s before you’ve accounted for building the turbines themselves.

Of course, the overall running costs of a wind farm will largely depend on:

• How big it’s going to be (and that includes the number of turbines you’ll have and their respective sizes)
• Admin costs
• The power required to run the wind farm
• Insurance
• Any decommissioning costs

It’s said that the average 3.5 MW commercial turbines can cost upwards of £3.13 million.

Although this initial investment will be well worth it when your wind farm starts being profitable, it requires a large amount of upfront capital.

And when you add on the annual operations and maintenance costs for these large turbines (around £174,000), you’ll see that there’s more to the average wind farm than meets the eye.

Overall, the average wind turbine will make an income of anything from £2.79 million to £7.1 million a year.

So, if landowner–developers are willing to shoulder those initial starting costs, the potential rewards are seriously significant.

What experts should I consult during wind farm extensions?

You may think you can go it alone when approaching a wind farm extension.

But there’s tons of value in consulting a team of experts that will help you negotiate properly.

Independent landowners often approach solicitors to guide them through legal deadlines and wording. Plus, it’s also worth approaching land agents to make sure your planning permission documentation is in place.

Oh, and don’t overlook the value of accountants, who are often underused.

They are invaluable when it comes to full payment audits. They can help determine the financial viability of a project and catch any missed payments while financially vetting new tenants.

If you’re an institutional landowner, you can call on even more experts to make the renegotiation process seamless.

Finance teams are extremely useful for looking at cost–benefit analyses and carrying out payment audits. And don’t forget to approach in-house land agents, procurement teams and legal teams that’ll have contracts looking sublime.

If you need further assistance, specialist consultants can ascertain the commercial viability of any site and will ensure favourable terms.

At Lumify Energy, we are always here to help guide you. So do not hesitate to get in touch.

Conclusion: A Few Final Words on Wind Farm Extensions

Over the years, I’ve seen countless landowners approach renegotiations with furrowed brows. But there’s no reason not to tackle wind farm extensions with confidence. While the process can feel time-consuming and daunting, coming to the table armed with knowledge and data makes all the difference.

Whether you’re years or just months away from addressing a wind farm extension, we’re only a click away with the actionable support you need to succeed.

Don’t hesitate to get in touch – we’re here to make the process smoother and your life that much easier.