Solar Farm Payments in the UK: Ultimate Guide

Topic: new solar projects Read Time: 8 mins
Landowner type:
Independent landowners | Institutional landowners
Energy: Solar
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Are you in the process of getting a solar project on your land? If so, you might be looking for a detailed guide to solar farm payments that’ll help maximise the value of your land. Stick with us to learn everything you need to know about rental types for the average solar farm.

If you’ve decided to put a solar project on your land, one of your top priorities should be your solar farm payments. But how should you decide which arrangement will suit you best? Well, that’s where we come in.

In this rundown, we’ll cover four major rental types: fixed, turnover, hybrid, and multiple outputs. By providing the detailed pros and cons of each payment type, you should be able to make an informed decision that suits you best.

So, let’s get to it.

Aerial view of a solar farm

Fixed rent is the most common type of payment arrangement that you’ll find in solar projects across the UK. In these cases, a landowner receives a fixed payment that doesn’t rely on how the solar farm performs. The site operator will calculate the rent as an annual fee and increase it over time to match inflation. While it may not be the most lucrative payment arrangement, it’s the most stable option for most landowners. 

Many landowners want to be relatively “hands-off” with their projects, and in our opinion, this is the perfect payment arrangement if you wish to have little involvement with the financial ins and outs of a project.

For most solar farms, fixed payments are based on an “acreage x rate” model. In short, landowners get a fixed rent for the portion of land they’re renting (measured by acreage). This layout is easier to understand than other payment arrangements, as most landowners know how much acreage they have to offer right off the bat.

The advantages of choosing fixed rent for your solar farm payments are:

  • You’ll get the fixed rate regardless of how well the project performs.
  • The fixed rate protects you from any volatility that the solar project experiences, including output issues, inflation, and poor performance.
  • It’s low risk and offers high certainty, making it the perfect choice for risk-averse landowners who are new to the game.
  • Landowners need to invest minimal time in checking the accuracy of their payments. The payments either match what’s agreed on their lease or they don’t.

However, while fixed rent is reliable, there are a few downsides that you’ll want to think about:

  • You’ll almost get a lower payment if you opt for a fixed rent arrangement, as this doesn’t expose you to the same risks as the developer sees. With the certainty of fixed rent, you also lose out on potential boom cycles that the project goes through.
  • You won’t have insight into how the project is performing financially; this information is often seen as commercially confidential if you have no real stake. This can make it more difficult to feel fully invested in the project for the 30+ years the lease runs for.
  • When a lease ends, it’s much more difficult to prove the market rate for a typical solar project if you have fixed payments. Much of the income you’re looking at from similar projects may operate with turnover or hybrid rent, giving you a smaller pool of examples to pull from.

As you can see, fixed rent offers several pros and cons for landowners. But overall, it’s a stellar option if you’re happy to accept a slightly lower rental figure for guaranteed payments and more certainty. However, if you’re more interested in maximising your income (and are happy to take a few risks), it’s unlikely to be the best fit.

Solar panels installed on a hill

Turnover rent is almost entirely different from fixed rent and is calculated based on a percentage of the site operator’s income. The site operator will sometimes calculate it based on the overall turnover of a project, but they should list their specific approach in your lease agreement. The site operator usually pays this rent annually or quarterly, and you’ll usually receive a higher rate than you would under a fixed rental contract. You will have to accept more risk here, though. 

While the potential rewards can be enormous, you’ll have a vested interest in the project’s performance. If you have an excellent year, you’ll naturally see an income boost. But if the project performs poorly, you could take a real hit (that you wouldn’t see with reliable, fixed rent). So, it’s all about weighing up the potential risks and rewards.

The advantages of turnover rent are:

  • You’ll receive a higher rent compared to other payment methods, as you’re essentially sharing in the financial risks of the solar project.
  • Landowners have greater insight into how well (or poorly) the project performs. This not only gives you the chance to understand your project better, but you’ll be in a stronger position during contract renegotiations with an intimate knowledge of your payments.
  • Receiving a percentage of the profits lets your income scale considerably as the project recoups its investment over several years.

The disadvantages of turnover rent are:

  • 85% of landowners discover calculation errors during the lifetime of their project, and that’s because calculations are far more complex. So, if you choose turnover rent over fixed rent, you must keep careful tabs on all incoming payments.
  • Some site operators might disagree on what is considered turnover or income. As a result, landowners may find unexpected deductions on their payments.
  • Verifying the accuracy of your solar farm payments can be tricky, as commonly used Power Purchase Agreements (PPAs) are often commercially sensitive. Site operators may share this information with you, but getting accurate data can be time-consuming and requires serious diligence on the landowner’s part.
  • You’ll be exposed to any income volatility the project experiences, which could drop your rental income.

Photo of solar panels next to a hill

If you want your solar farm payments to mix the best of both worlds, a hybrid rental contract might be the way to go. As you might have guessed from the name, this payment arrangement combines fixed and turnover rent. This means you’ll usually get a fixed payment for leasing your land AND a calculated proportion of the site’s turnover.

Advantages of hybrid rent

  • This payment arrangement gives a landowner complete visibility over their solar project. When a mid-lease option or renegotiation process rolls around, they’ll be in a great position to negotiate (as they’ll have all the financial information).
  • Although there is a degree of risk here, you need to be fully exposed to the financial risks of the solar project. So, if there are periods with poor irradiance, cloud cover, damaged panels, or anything else, you won’t suffer as much of a blow.

Disadvantages of hybrid rent

  • Monitoring your solar farm payments will be far more complicated than tracking a fixed or turnover arrangement. You’ll essentially be monitoring two different payment types at any one time.
  • It can be tricky to get all the information you need to track the accuracy of your payments. From PPA information to turnover details, you might get paid less than you’re owed if anything is missed.
  • If the site operator sells the electricity generated by the site for less than the market price, you could lose out. This sometimes happens with PPAs and can reduce the overall turnover of your solar site.

Solar panels next to a power grid

Although it’s not a typical payment arrangement at most solar sites, you can also consider generational or multiple of outputs rent. This involves landowners receiving rent based on the electricity a site produces. The figure is multiplied by a fixed value to give you the final rental fee. This is a great choice if your site is set to have impressive output over the years. It is paid quarterly or annually, and like other payment arrangements, it will also increase with inflation.

There are lots of pros to choosing this arrangement for your solar farm payments, including:

  • There’s less exposure to price volatility as payments aren’t linked to the project’s income.
  • It takes little effort to check the accuracy of the payments. However, you must check that the payments are regularly increasing with inflation. It’s also essential that you have the means to double-check whether the figures given to you about energy generation are correct.
  • It’s difficult to disagree with a site operator about the amount of rent due, as it’s less complex and less subjective.
  • This payment arrangement isn’t affected if the site operator chooses to sell a PPA to an off-taker for a lower agreement than the market price.

However, there are disadvantages to this type of payment arrangement:

  • A landowner is more exposed to the operational risks of the project that can be affected by poor management. For example, no electricity can be generated if the site is down for an extended period. In these cases, the landowner will receive no payments.
  • Landowners need more visibility over the project’s performance, and they will be less able to negotiate payment increases.
  • Verifying the exact amount of electricity produced is tricky as this will come directly from the site operator. So, a good relationship with your site operator is a must here.

There is no such thing as the “correct” or “best” payment arrangement for every landowner. That’s because landowners across countries will have different appetites for risk and varied priorities. It’s also worth mentioning that many landowners choose fixed rental payments as solar developers are on the smaller side in the UK. Calculating a fixed rent is generally considered a less admin-heavy approach to the whole process.

Some solar landowners are paid in royalties, but these tend to be based on megawatts or production capacity. If the payments are income-based, the solar farm will need to have a lot of installed capacity to match the payments that a wind farm makes. So, a wind project may be more suitable if you’re a landowner looking to get the most bang for your buck. Now, this is down to what your land has to offer. If it’s in an area with less-than-ideal wind speeds, you’ll be on to a loser here. However, it’s worth considering that you’d need to host a 20MW solar farm to produce the same income as a 1MW wind turbine.

This isn’t to say that solar isn’t an excellent investment. Generally, projects have an ROI of between 10% and 20% (which is nothing to scoff at). However, allocating the sheer amount of land that developers need for a successful solar project can be difficult for any landowner. If you have less land to spare and excellent wind speeds in your area, turbines may be a more lucrative option.

And if you need to figure out WHICH type of renewable energy project to go with? Well, it’s always worth calculating your acreage, checking solar irradiance levels in your area, and assessing the topography of your land. After all, you’ll want to be well-prepared if a developer approaches you. This way, you’ll have all the answers to make an informed decision.

If you’re still feeling stuck, contact the team at Lumify Energy. We’ll be more than happy to advise you on the correct path to take. And if you’re already in the negotiation phase for a new solar project, we’ll help you choose the right payment arrangement for your needs. That’s right—there’s no need to stress, as we’ve got you.

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