Three ways landowners can diversify their income streams without subsidy support
|Author: Travis Benn||Read time: 4 mins|
|Client type: Institutional landowners||Technology: all|
Subsidies have given the renewables sector a significant boost over the past two decades. However, cuts to financial support for onshore wind and large-scale solar projects together with a shortage of grid capacity has almost halted the current development pace.
The graph below shows how the number of UK on-shore wind farms and solar projects commissioned has changed each year since the introduction (in 2002 and 2010 respectively) and subsequent withdrawal (in 2017) of government renewable energy subsidies.
Number of Wind & Solar Farms Commissioned by Year
But that’s not to say that landowners’ chances to diversify revenue streams has completely disappeared. In fact, opportunities are rife if they know where to look for and how to widen income pools. For example, battery storage has caught the attention of many landowners in recent years.
1. Take charge of income streams with battery storage
New technologies like large-scale battery storage are increasingly coming to the fore. And falling costs, for solar in particular, have helped mitigate cuts to support, keeping both developers and investors interested.
Other developers are also actively looking for sites suitable for battery storage or short-term operating reserve (STOR) standby generators for grid balancing—traditionally diesel gen-sets, but now primarily gas-powered units.
Any sites close enough to parts of the electricity grid (and the gas grid for STOR generators) with spare capacity are in solid demand, which is good news for landowners.
Anesco’s subsidy-free solar farm looks like just the beginning: multiple projects are underway to install new battery storage systems alongside existing wind farms for balancing power supplies to the grid (the so-called enhanced frequency response services).
One high profile example of this was Vattenfall’s partnership with BMW, which saw battery storage added to the Swedish power company’s operational wind farms. The most extensive battery system being Pen y Cymoedd Wind Farm in South Wales that became operational in 2017, having 76 turbines and 22 MW of co-located battery storage, costing £381 million.
The UK’s first solar farm to be built without subsidies was officially commissioned in Bedfordshire in July 2017, marking a significant milestone for the renewables sector. Anesco’s 10MW solar farm was co-located with 6MW battery storage, a driving factor in making the project viable without subsidies.
However, the true commercial viability of the project has been called into questioned, given that the project has also benefitted from the use of an existing grid connection agreement.
Moreover, the project has only once made a small operating profit (i.e. of £31,476) during the past four full years since of trading the solar farm has been operational. In fact, on average the project has made an annual operating loss of £185,874.
2. Leverage site location
In many areas, limited electrical grid capacity remains the biggest barrier for any new energy development, so landowners with sites that meet developer requirements are likely to be in a strong negotiating position.
This may particularly benefit landfill owners and operators, whose sites already generate renewable energy from landfill gas and have excess grid capacity due to the declining nature landfill gas supplies.
3. Choose the best options for your land
What works for one technology or location may not necessarily be suitable or viable in another, so it’s essential to consider all options.
Projects tailored to the current and future requirements of the business and the local grid constraints will likely see the best return.
For example, with renewables such as solar and wind, the focus is on the available export capacity to the electricity grid—but remember that battery storage requires both import and export capacity to be available. As for gas or diesel, STOR backup generators require export only.
Ready to explore things further?
1. If you are interested in exploring these opportunities, it is worth discussing with your developer whether they are viable options for your site. Even if your developer hasn’t considered these options, they may be willing to partner with a new developer to realise the opportunity.
2. You could also consider instructing your solicitor to check whether your existing lease agreement enables you to pursue these opportunities independently. If given the green light, you’re in a position to instruct your land agent to approach experienced developers in these areas who can explain how your site can benefit.
3. Further, landowners should think ahead when entering into new renewable energy project contract when renewing their existing contracts to consider the taking of the grid connection agreement at the end of the project, since this has significant future value.
Use the ever-changing nature of renewable energy to your advantage
Energy sector tech advancement is constant, so make the most of falling equipment costs and bag yourself a bargain.
Ongoing decarbonisation of power supplies and electrification of transport will undoubtedly create further opportunities. As the UK switches from dominant large power stations to a more decentralised energy sector, some landowners will be well placed to benefit.
Despite the removal of subsidy support, there are opportunities to consider in this rapidly changing market, and as a UK landowner, you are in a very good negotiating position.
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