Renewable Energy Projects – Option Agreements
Billions of pounds of renewable energy projects are being postponed because of delayed connection dates to the Grid. Due to capacity issues at the Grid, some renewable projects will not be able to connect to the Grid until the 2030s.
With rents from renewable projects such as solar farms and battery storage projects being significantly higher than the profits from farming, entering into options with renewable companies (RC) is often an attractive proposition for landowners.
Understandably, due to the Grid’s constraints, RC’s are frequently looking to have the benefit of longer-term option agreements from landowners. An option agreement gives the RC the security they need to apply for and obtain Grid connections and planning permissions.
The option will contain protective provisions for the RC which prevents the landowner from entering into or promoting a competing project on any other land of the landowner. In addition, there are many variables with the renewables project which are not known at the date the option is granted. For example, the size of the renewable project, the access to it, and the route of the cable are all unknown until after planning permission has been obtained.
The land subject to an option agreement therefore frequently includes more land than the RC may ultimately require to ensure that the RC maintains flexibility so any planning or other issues can be fully dealt with.
The difficulty for the landowner is that they may, therefore, be restricting the use and potential development of land (for the duration of the extended option period) which may not be ultimately required for the renewable project.
Where there are Grid constraints, landowners should consider limiting the initial option period with an option for this to be extended if planning permission has been granted and if there is a delayed connection date. Landowners should also consider, once planning permission is obtained, whether the land subject to the option should be reduced so that any land that is not required is free from the option. This would then enable landowners to move forward with any other plans that they may have for the released land knowing that it will not be affected by the renewable project.
The landowner should also consider whether they require payment of a further option payment at this stage so the option period is extended to ensure the RC is still committed to the project.