What payment arrangement is best for your renewable energy project?

When renegotiating your renewable energy project, navigating this new world can be quite overwhelming – leaving you with lots to consider. One of the most common questions we get asked is, ‘How much should we be earning from our project?’ 

The answer varies from project to project.

For example, a client of ours installed a noise management system to minimise the sound from their wind farm, and this massively reduced the efficiency and therefore the payments from their project. However, had they chosen a fixed rent option, they would have been better off financially.

Let’s talk about what the different options are and the pros and cons that go along with them.

Fixed rent

The first type of rent is fixed rent, and this is where the landowner receives a fixed payment regardless of how the renewable energy project performs:

Turnover rent

The next type of rent to compare is the percentage of turnover. This is where the landowners receive rent based on the percentage of the sites operator’s income or turnover from the project.

We explore the pros and cons in the following table:

Take a look at the video below where I explain the importance of checking the payments landowners receive from their projects. This is especially important for landowners who receive a turnover rent.

Hybrid rent

The third type of rent is a combination of the fixed and percentage of turnover rent. In this scenario, landowners receive a guaranteed minimum amount of rent plus a bonus payment, i.e. a percentage of the turnover of the project if it performs well.

Multiple of outputs rent (or generation rent)

The fourth type of rent is a multiple of outputs rent. In this scenario, landowners receive rent based on the amount of electricity produced by the site, multiplied by a fixed value. For example; £1 per unit of electricity produced, which increases over time with inflation.

The takeaway

The main lesson here is that every arrangement has its pros and cons, and only through thorough examination will you know which one is best for your project.

Landowners should assemble the right team and work closely with them, you can explore the various types of rent available, and carefully decide how best to proceed. We highly recommend talking to experts who have recently been involved in projects, across a range of developers and always carefully assess possible future scenarios before making a decision.

To explore issues around leases, extensions and all things renewable energy, take a look at the Lumify Energy blog or reach out to our team to have a chat about your project.