Wind Farm Extensions: The Ultimate Guide
|Topic: wind farm extension||Read Time: 23 mins|
| Landowner type:
Independent landowners | Institutional landowners
|Energy: Onshore wind|
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.
If you’re repowering a wind farm, you’ll replace 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 can be generated from a single site. While this 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 comes a greater chance of increasing the project’s profits and therefore your income.
As this process can result in fewer turbines, it’s also a chance to free up a proportion of your land.
What Are the Main Challenges Landowners Face With Wind Farm Extensions?
In our experience, the main challenges that landowners face with wind farm extensions are:
- A level of uncertainty with projects being sold to other companies soon after extending. In these cases, landowners can feel unsure about what they will be like as tenants.
- Planning permission (even for extensions) – planning permission can be extremely difficult to get these days and we understand the pain.
- Knowing what current rents are and what rent values they should negotiate – Bring on SiteScanPRO(™) which will give you the cold, hard data that can’t be disputed.
- Having a wind farm not placed on your land at renewal. We have seen some wind farms being made smaller with larger turbines with landowners being left out.
Everything You Need to Know About Approaching
Wind Farm Extensions
1: How Did We Get Here: A Brief History of Renewable Energy in the UK
It’s no secret that the UK has come on by leaps and bounds with its use of renewable energy over the years.
We’re no longer relying on simple windmills from the 7th century to produce our energy. Instead, we’re aiming to get an impressive 100% of the country’s energy from renewable sources by 2035. This is set to be a challenge based on the reduction of subsidies for new renewable projects. But it’s hoped that net-zero targets will spur on the UK government.
Considering just 43% of the UK’s energy was sourced from renewables in 2022, the country is certainly getting there! And with gas prices skyrocketing, the general public is starting to support the growth of more renewable energy projects. So, that’s where landowners come in to host projects on their land.
The most important thing to remember is that you should be adequately compensated for the use of your property. And that comes with adequate payment arrangements.
2: The Lowdown on Payment Arrangements
With any lease for wind farm extensions, one of the first things to think about 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.
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 of 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.
We’ll say that there are distinct pros and cons to each option. So, the arrangement you go with will depend largely on your aversion to risk.
For landowners won’t want to keep a close eye on payment accuracy or calculations over time. For this reason, 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.
This will let you make crucial decisions without panicking, as you’ll have the facts and figures right up your sleeve.
And if you want a better idea of how other sites across the country are performing in comparison to yours? Lumify SiteScan™ is your answer. With this cold, hard data in hand, you’ll have the confidence to secure the best deal for your project.
3: What Happens When Leases End Without a Contract In Place?
Now, the end of a project lease doesn’t necessarily need to mean the end of a project. If you’re gelling with your site operator and wish to extend your current wind farm lease, then feel free. But you’ll want to plan strategic negotiations that take the new renewable energy landscape into consideration.
Most modern leases can be up to (and over!) 30 years in length. For this reason, it’s entirely possible that the industry will have changed significantly during that period.
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 contract, you could put yourself in a weaker negotiating position.
If your lease agreement lapses, you may come up against the following challenges if you don’t have an agreement in place:
- Having limited options as you scramble to form a plan last-minute.
- Potentially unclear terms as you have no certainty on ongoing rules without getting a formal contract in place.
- An unopposed renewal that’s even more likely if you haven’t opted out of the Landlord and Tenant Act of 1954.
- No inflationary factor if this wasn’t previously built into your lease.
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.
These situations won’t always be a problem if you have a good relationship with your site operator. But we will say that letting your lease lapse means that site operators can use this as leverage. This means that you may have less bargaining power (while your site operator has more).
So, be sure to get 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.
4: Why You NEED to Think About the Landlord and Tenant Act 1954
We’ve briefly touched on the Landlord and Tenant Act of 1954. But we need to reiterate just how important it is for landowners.
Although you’ll only need to pay particular attention to sections 24-28, we highly recommend that you OPT OUT of these. This act essentially 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 that you’ll want to avoid.
By opting out, you’ll be in a far better negotiating position than anyone who hasn’t. And this is because you’ll maintain complete control over what happens to your land once your lease ends.
It’s possible to keep the current site operator on the land and continue with the status quo. But if you don’t want your terms to be exactly as they were, this is your chance to act. Whether that’s increasing rental rates or removing the site operator entirely, you’re free to do so.
If you haven’t opted out, you can only remove your site operator if they’ve breached their contract in some way. Otherwise, you’ll have to pay a hefty compensation fee to the outgoing operator (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 6 to 12 months with most contracts. So, keep this all in mind before heading to the negotiating table.
5: What Are Our Top Tips For Securing the Best Terms Possible?
You’ve probably built up a decent relationship with your operator by this stage in the game. But you may still feel unsure by the prospect of renegotiations. Don’t worry, though. With the right power tools at your disposal, you can prepare yourself with all the information you need for success.
Now, let’s find out what these tools are.
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, having information about similar sites across the country can only benefit landowners at negotiation tables. 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.
Demonstrate the value of your site
Knowing the net present value of a site helps landowners achieve a target rate of return from any project. By getting an idea of the site’s income potential, you can discuss your site’s goals clearly with your operator.
Can you obtain a breakdown of electricity generation, identify a shortlist of similar sites, or forecast future costs? Any information you can gather will help to strengthen your position during negotiations.
Be aware of lease dates and come armed with a plan!
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 our 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.
Consider your financial terms carefully
This is an overarching point that applies to all renewable energy projects. But it’s so important at this stage 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 things that need to be clearly spelled out in a new lease. So, it’s extremely important to take your time reviewing your financial terms to avoid losing out down the line.
It honestly doesn’t matter whether you’re a pro negotiator or are slightly nervous about the process. Most landowners will naturally be in a strong position here. And if you strengthen your negotiation terms with facts, figures, and a sprinkle of help from a team of experts? Well, you’ll be in a good position.
6: 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 approach solicitors to guide them through legal deadlines and wording. Plus, it’s also worth approaching land agents to make sure your documentation regarding planning permission is in place.
Oh, and don’t forget the incredibly helpful accountants! Although they can be 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. But 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.
So, while these experts may be an investment – they’re always worth checking out.
7: Our 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.
You can’t go too far wrong with the help of experienced experts.
But you can still help yourself with a few simple steps.
Document the process
The first thing you should do is document EVERYTHING. From detailed meeting notes to concerns about contract wording, noting down everything you discuss during negotiations sets you in good stead.
Check your terms
You’ll also need to carefully check your terms before signing on the dotted line of a wind farm extension lease. Whether that’s taking account of inflationary terms or discussing appropriate payment terms, you should leave no stone unturned. Oh, and you’ll need to make sure you’ve opted out of the Landlord Tenant Act 1954 before removing your site operator.
Carry out a land audit
When your lease is coming to an end, carrying out a land rent audit is never a bad idea. By doing this, you make sure that payments have been properly made (and avoid accidentally waiving your right to compensation). So, it essentially means that you’ll be able to get the best possible terms when negotiations roll around.
Know what your responsibilities are
You’ll probably have a decent idea of your responsibilities from your existing lease. But you’ll want to make sure that none of your rights are being extinguished when signing a new lease. Plus, it’s always a good idea to make sure your site operator is fully aware of their responsibilities. This should help you both to foster a successful and harmonious relationship with few to minimal issues over the years.
Lose track of time
One of the most common pitfalls we see during a wind farm extension negotiation is simply running out of time. So, 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.
If you’re wondering why this is so important, let us quickly give you a rundown.
Site operators can often have many different sub-entities and companies. For this reason, they may sometimes sign an agreement under a company that you know nothing about.
Before you sign on the dotted line, check things over with a legal team before proceeding.
Fail to negotiate financial terms
We understand that we’ve briefly mentioned the importance of negotiating good financial terms as a landowner. But as landowners can sometimes gloss over a few factors before negotiations, we thought it was worth mentioning this again.
As wind farm projects will be on your land, you should be adequately compensated through rent and performance payments.
And not just that.
It’s also worth thinking about the funds you’ll need to set aside to pay experts during the renegotiation process. Oh, and the same applies if you’re starting a NEW wind farm. You’ll need to have cash at the ready to keep the process moving along smoothly. As long as you approach your renegotiation with enough time on your hands, you shouldn’t have many issues.
8: Finalising Contracts and Negotiating Terms
If you’ve had a project on your land for several years, you may have been approached by an operator to extend its life.
So, there are a few things you need to consider before finalising your lease.
Things to consider before finalising your lease
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. Once you’ve checked in with your site operator on their future plans and negotiated any additional terms, it’s time to finalise your agreement.
Modernising terms and the importance of wording
We often find that leases need to be heavily modernised before being resigned. But many landowners also want to alter their current payment arrangements.
Whatever you do before signing on the dotted line, it’s KEY that your contract is carefully written and reviewed. Even a few misplaced words on a lease can alter terms or significantly reduce how much rent you’ll receive. So, it’s crucial to walk into renegotiations with expectations for rental payments and a clear idea of what occurs when the project is decommissioned.
Overall, if you work closely with your site operator when renewing your lease, you should achieve an excellent deal.
9: Current Trends in Wind Farm Extensions to Think About
Speaking of finalising contracts, you should be aware of a few current trends in wind farm extensions that can help landowners secure a better deal.
One of the major things we’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 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 we’re seeing at the moment is an extended lease duratio Although 25-30-year leases used to be commonplace, the rise of 40 or 50-year leases are popping up across the country. This naturally comes with more planning requirements and considerations for landowners.
So, you’ll certainly want to bear this in mind before diving into any extension.
There’s always a chance that landowners will run into unanticipated changes over the course of a lease especially with them being longer in duration. And that’s why it’s important to build an inflationary factor into payment clauses to protect your financial interests. 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, we’ve noticed that landowners are becoming more acutely aware of the current market. Not only does that include how other sites are operating, but it’s also about being aware of how the playing field looks. 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.
We’ve found that landowners have had great success with 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 in turn, this should give you the help you need to secure an excellent deal.
As there is an anticipation of the relaxation of planning laws in the UK, we’re seeing a major rise in option agreements. This is a way for developers to bookmark a viable spot for wind energy in anticipation of government policies changing. It’s hoped that this trend will continue as it’s a great way to encourage the production of more offshore wind. But only time will tell how committed the government is to actually relaxing planning permission restrictions.
Reducing the number of turbines in an area
One of the major trends we’re seeing for wind farm extensions is a reduction in the number of turbines on a single site. This is because single turbines are now able to generate more energy than two. 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.
10: Planning Permission Woes – What Are the Chances of Getting It?
Now that we’ve touched on planning permission, it’s time to discover just how to get it. We’ll be honest here – it’s not easy.
With so many restrictions from local councils (and the public), getting wind farm extensions approved can be a difficult task. You were probably granted planning permission for up to 25 years for an initial project. But this may not be extended.
The relaxation of planning permission that we mentioned earlier will certainly help to boost the possibility of wind farm extensions. However, nothing is guaranteed if you can’t secure local support to move forward with your extension.
We’ll say that repowering is typically seen as an easier route for many landowners and developers. But the ins and outs of the planning permission process can still feel frustrating and fruitless at times. It’s hoped that high energy prices (and net-zero limits!) will eventually convince the government to remove these roadblocks.
And as the current rules mean that every site needs to be pinpointed as a suitable option for wind production before getting the green light?
Well, movement is slow.
We strongly believe that there needs to be an element of pressure that forces local councils into action. Otherwise, their complete inaction could lead to further environmental degradation as we exhaust our existing sources of energy. Plus, with over 74% of Britons now in favour of onshore wind, we’re not entirely sure what the hold-up is.
11: The Tax Implications of Wind Farm Extensions
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:
You could force yourself 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’s complex if you’re trying to manage your income to avoid paying hefty taxes.
They might impact inheritance tax
Another thing to consider is whether your wind farm could impact the inheritance tax received by your family. It’s possible that you’ll be taxed if your assets are in your name at the time of death, but 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.
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 would 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.
There may be VAT to consider
Oh, and of course there’s VAT to consider with any large project. 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.
12: 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.
Changing site operators
We get that it’s not always possible (or beneficial) to stick with your current site operator. If things just aren’t flowing smoothly, you may be wondering whether it’s worth picking things up with a new operator.
If you’ve opted out of the Landlord and Tenant Act 1954, you’ll be able to freely change site operators by approaching 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 behaving in line with the terms of your existing lease.
But otherwise, you’re free to end your working relationship and move on to greener pastures.
Bringing a project in-house
If you’re planning to bring a project in-house, you’ll need to start your journey by looking at equipment suppliers. They’d all need to be able to maintain and operate the wind farm successfully. 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.
Continue to the next section to find out about the costs of running a wind farm.
13: 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 may 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.
We’ll say that 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! But you should also consider admin costs, the power required to run the wind farm, insurance, and any decommissioning costs.
It’s said that the average 3.5MW 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 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.
14: How to Realise the Full Potential of Your Project
If you’re a bit put off by the initial cost of starting a wind farm, then you may want to learn how to realise the full potential of your project. Without having to pour too much time and energy into the job, of course.
The main things that you’ll want to do are:
- Carefully reviewing contracts and historic payments
- Reassessing your lease before negotiations start (and checking for missed mid-lease options)
It may seem simple, but these two steps can help you pinpoint and uncover any unrealised income. If you can do this, you’ll be able to negotiate a higher figure at the table.
Reviewing contracts and historic payments
The easiest way to start is by reviewing your current contract and historic payments to date. In our experience, up to 80% 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).
Reassessing your lease
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. As they’ll probably have increased over time, landowners are very likely to benefit from this arrangement.
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.
15: Wind Farm Extension Lease Considerations for Landowners
When it comes to wind farm extensions, there are several things that landowners will need to consider before signing a new contract. From payment terms to construction considerations and land impact, you’ll want to truly know what you’re getting into. If you’re wondering what you need to think about before diving headfirst into a wind farm extension, we’ve got you covered.
Payment arrangements and length of term
We’ve briefly covered this in section 2, but it’s worth reiterating that figuring out the right payment arrangement can be a difficult decision for any landowner.
The arrangement you choose will be entirely based on your preferences and appetite for risk. But the most important thing is to guarantee that you’re paid equitably. Having adequate market data to hand is a great way to ensure you’re getting a fair rental price, as your site operator won’t be able to argue with cold, hard facts.
In terms of the length of term, you’ll also want to remember that option agreements can significantly extend the time your land is tied up for. This is because option agreements essentially “reserve” the land for the developer in question.
In the meantime, you’ll need to set aside a portion of your land and won’t be able to expand any farming opportunities for the duration of the agreement Equally, if you sign an extended contract (which we talked about in the current trends section!), you could be tying up your land for 5 decades.
Another thing that landowners don’t always consider, is that access roads will need to be built to construct wind turbines. This is the case whether new turbines are being erected OR whether turbines are being replaced. These roads will also need to be kept open for maintenance and daily operational access.
If you’re worried that this could impact your farm operations, it’s crucial to discuss this with your site operator ahead of time.
With the building of access roads and the space required to construct turbines, there comes some degree of impact on the land you’re leasing. We’d say that the overall land impact of a wind farm is minimal in the grand scheme of things. But turbines can take up a lot of space when they’re being constructed.
You’ll also need to consider the fact that turbines legally need to be placed at a certain distance from buildings (and each other). So, you’ll essentially have ‘dead space’ on your land that you’ll need to give up.
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 dive into wind farm extensions and the contracts associated with them, it’s key that you outline what will happen during decommissioning. This is typically handled by site operators. But you’ll certainly want to explicitly record who’s responsible for 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.
A Few Final Words on Wind Farm Extensions
During our time in the industry, we’ve seen countless landowners approach the renegotiation table with furrowed brows. But there’s absolutely no reason to approach wind farm extensions with anything other than a spring in your step.
Although we understand that the renegotiation process can be time-consuming and daunting, if you come to the table with knowledge and data – you can’t go far wrong! It doesn’t matter whether you’re years or mere months away from tackling a wind farm extension.
We’re always a click away with all the actionable help you’ll need to be a rousing success at the negotiation table.So, don’t be afraid to get in touch and let us make your life that much easier.