Six Tips for Landfill Site Owners

Are you a landfill site owner looking to maximise your income from a project? Join me as I reveal six must-know tips for landfill site owners that’ll have you reaping the full financial benefits from your project.

There are around 540 landfills operating in the UK as of January 2024. Over 450 of these produce renewable energy through landfill gas capture technology installed onsite.

While landfill gas isn’t always viewed as the cleanest renewable energy source, it remains a valuable contributor to the UK’s energy mix.

It tends to offer a steady and reliable output at a time when energy consistency is increasingly important in light of externally-driven energy price increases. By producing this energy, the site also generates an income for landowners, which can be incredibly valuable.

For site owners, this process largely happens in the background. In most cases, the gas capture infrastructure is installed and operated by a third-party energy company. They’ll lease a portion of the site and offer royalty payments to the landowner in return for anywhere between 15 and 25 years.

With that in mind, here are six practical tips that are designed to help landfill site owners manage their agreements more effectively. Whether that’s keeping track of royalty payments or ensuring equipment is maintained and income is fully disclosed, this advice will set you in good stead.

Tips for Landfill Site Owners That You’ll Want to Know About

Understand that the process isn’t always straightforward

Owning a landfill site may seem simple, and it should be. But this is rarely how things play out in practice.

While you’ll own the land, the site operator is usually responsible for extracting the gas and paying any due rent or royalties. Calculating these royalty payments can be a challenging task and often requires specialists to dig deeper.

Without the help of specialist software and a trained professional’s eye, royalty calculations can contain mistakes. I’ve seen payment errors in up to 85 per cent of the projects I’ve reviewed across the renewable energy sector. This shows just how widespread the issue is.

For that reason, one of my top recommendations for landfill site operators is to work with a specialist. This will help you navigate the more technical aspects of a site more efficiently and ensure the best possible outcome.

I know first-hand how time-consuming and taxing reviewing royalty agreements and sifting through the details can be. This is especially true if you haven’t had any specialised training in this rather niche field.

Lumify Energy’s SiteView360™ allows landfill owners to accurately keep track of all income due with a historical payment review. We’ll break down your site’s performance and offer peace of mind that you’re fully maximising the value of your site. All while receiving the payments due to you, of course.

Keep an eye on any equipment updates

Upgrading, replacing or installing new equipment is standard in many businesses.

The typical landfill gas contract runs for anywhere between 15 and 25 years. So it stands to reason that the original equipment will need replacing at some point during that period.

But you’ll need to understand whether any new equipment alters the operation of the project, if so, you may be due some additional income.
If a site operator hasn’t communicated a change of equipment to the entire project team (especially the finance team), this could cause significant issues. Additionally, if the finance team hasn’t updated royalty calculations appropriately, you might lose out on additional income.

While some revenue may go unreported, underpayments often come from oversights. You may discover unreported income where an extra gas engine is added to the project with its own electricity meter. If this isn’t reported properly by your site operator, it can lead to unpaid royalties.

Why does updated equipment lead to higher potential income?

Just to put this into context, more efficient, newer equipment can yield more energy to send to the Grid. Improved gas collection systems can capture more methane, and modern engines convert that methane into electricity more efficiently.

Upgrading to better wellfield management and monitoring systems also makes gas loss from the site less likely. That means you’ll have more potential energy to sell on.

Furthermore, newer technology often meets stricter environmental standards. This reduces methane emissions overall and can even push your site to qualify for carbon credits. Your operator can sell these for additional revenue.

Whatever the case may be, you should be getting a cut of all additional income generated if you’re on a revenue-based payment arrangement.

Correct royalty issues early and review historical payments

As I’ve mentioned, it’s not uncommon for royalty payment errors to arise when leases last for as long as 25 years. In my experience, these errors usually go unnoticed for many years, if they’re ever caught at all.

However, the more time that elapses, the more difficult it can be to identify and correct payment errors. And that’s because they gradually form part of the status quo.

Eventually, it can be extremely difficult to notice any discrepancies, especially if the original team members who set up the project have left the business.

Be aware that you might be challenged

Even when errors are eventually discovered down the line, some site operators might seek to refute them. They may say that the method of calculating the royalty payments was legally varied by the past conduct of the parties. So, they may fight against paying what you’re owed.

They can even argue that these errors have existed for a long period without any objections being raised. For that reason, the previous status quo must have been as you intended.

Be mindful of statutory time limits

Unfortunately, there are also statutory time limits for claiming unpaid royalties. If your royalty underpayments have passed under the radar for a number of years, re-claiming the amounts you’re owed may prove more difficult.

 So it’s incredibly important to raise any payment issues as soon as you find them. Even better, carry out regular, thorough payment audits that will catch even the smallest errors or discrepancies.

This way, you’ll have valuable information to hand that any site operator will struggle to ignore or refute. You just want to avoid losing out on the chance to recover any unpaid monies owed to you by leaving it too long.

Determine any undisclosed income and communicate changes to Power Purchase Agreements

Although many renewable energy projects can last for over 25 years, they’ll typically have multiple power purchase agreements with different third parties. These third parties buy the renewable energy produced over this period.

These are highly complex and commercially sensitive contracts, and they don’t automatically align with the underlying royalty contract.

So, any changes made to the Power Purchase Agreements (PPAs) will need to be communicated between team members. When this is done, royalty calculations will usually need to be manually updated by the team’s accountant as soon as those changes occur. This ensures that royalty payments remain accurate and up-to-date.

Issues with classifying newer income streams

However, some of the royalty calculations may struggle to classify some of the newer income streams from PPAs. So they might classify these as ‘non-trading income’ or as adjustments against ‘cost of sales’. This can lead to a site operator under-reporting income, which can have a knock-on effect on royalty payments.

This can be a tricky balancing act, and as regular errors in payments are discovered, it’s clear that royalty calculations are not always done well.

In short, these PPAs can change over time, and new contracts may include different pricing structures or additional income streams. But if you’re unaware of these changes, you may not receive the correct share of the income owed to you. Ensuring transparency in how electricity is sold can help maximise royalty payments and keep you in a good position moving forward.

Ensure energy is sold fairly to avoid artificially low royalty payments

Royalty contracts normally require that all energy is sold at an arm’s length market price.

This transfer pricing concept outlines that a ‘price agreed in a transaction between two related parties must be the same as the price agreed in a comparable transaction between two unrelated parties’.

In some cases, the energy company may sell the energy produced to a related company. The company may then later re-sell it to a third party at the full market price.

In this instance, an artificially lower royalty payment might be calculated based on the initial (AKA: below market value) sales price.

For this reason, it’s crucial to analyse historical sales revenues to stop this from happening. This is particularly important when the operator has a vertically integrated business or has made any sales to a related entity.

Get a solid contract in place

I always emphasise the importance of having a well-structured, robust contract in place, and this situation is no exception.

A large amount of renewable energy royalty contracts were written many years ago when the industry was still in its infancy. These contracts were typically written by solicitors well before the project became operational.

So it’s often difficult for these contracts to keep pace with changes in the industry. They can also contain payment terms that are highly impractical and can result in the frequent late payment of royalties.

A royalty contract might ask for a payment to be made based on RPI movements up to a certain date. In many cases, this information hasn’t even been published when the payment is set to be made.

Case in point: Woden Park v MonSolar IQ

There have been recent high-profile cases where royalty contracts were drafted in such a way that payments were calculated based on the double-counting of inflation.

This happened in the Woden Park Limited v MonSolar IQ Limited case. It saw rent increasing from £15,000 per year in the first year of the lease. This rose to £76 million per year in the final year.

Report all income for royalty purposes

Many royalty payments are based on a percentage of the gross revenue arising from the renewable energy project. However, site operators can have a different interpretation of which proceeds should be included in ‘gross revenue’.

In my view, it’s important to analyse all energy produced and report all income for royalty purposes. Not all income may have been recorded as eligible ‘gross revenue’ (or trading revenue) and may well result in lower royalty payments.

It’s one of the most critical tips for landfill site owners that I can give.

Want to Stay Ahead of the Curve on Landfill Gas Opportunities?

Our essential guide breaks down what the end of ROCs means for landowners.

Whether you’re already hosting landfill gas infrastructure or exploring the opportunity, this guide will help you understand:

• How Contracts for Difference (CfDs) really work.
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• The pros and cons of entering a CfD agreement.

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Final Thoughts On Maximising The Value From Your Project

There are many factors that can result in the underpayment of royalties on a landfill gas site. So, it’s incredibly important to regularly and actively review your renewable energy payments.

Along with using these top tips for landfill site owners, you should maintain an active dialogue with your site operator at all times. This way, you can discuss any changes in equipment or PPAs to fully understand how they may impact your project’s future performance.

You should also be aware that there is always the potential for different interpretations of your royalty contact. By revisiting your contract and fully understanding it, you have a better chance of correcting payment errors quickly.

I completely understand that receiving every penny you’re owed from your landfill gas project isn’t straightforward. With those complex royalty agreements, changing equipment and shifting Power Purchase Agreements, it’s easy for income to slip through the cracks.

At Lumify Energy, we pride ourselves on helping landfill site owners take control of their revenue. By running your site through a full, historical payment review, you’ll have total visibility into your site’s financial performance.

From spotting underpayments to ensuring fair market pricing, we’ll make sure you’re getting what you deserve. Contact us for a no-obligation chat and unlock the full potential of your landfill site’s income.