Top tips for green energy diversification
Priscilla Hall, Head of our Green Energy Sector, considers how farmers and landowners are continuing to embrace green energy diversification and outlines some key tips to consider when diversifying in green energy for the first time or upgrading existing technology.
Farmers and landowners have always been adaptable in the way they have managed their farms or estates regardless of size, type or location.
An NFU survey found that the proportion of farmers with a diversified business jumped to 37% in 2021 from 30% the year before. This annual increase is bigger than in previous years. In 2019 and 2018 the percentages were 30% and 28% respectively. With national policy guidance to planning authorities supporting farm diversification this is hardly a surprising finding.
The extent to which non-farming activities contribute towards business turnover varies considerably. The NFU survey states that on average it contributed 16% in 2021, up from 11% in 2020.
Any diversification will always be subject to a variety of considerations including the quality and suitability of the land. If the land is used primarily for food production which is graded on its quality – with 1 being excellent and 5 classified as very poor – this will have a bearing on what land can be diversified.
As a general rule the higher the quality the less likely the land will be permitted for diversification. If the land grading is not known, it is worth establishing what it is and any proposed changes to Government policy which is likely to take into consideration energy and food security along with environmental and carbon reduction objectives.
Over the last couple of years there has been significant debate whether to allow onshore wind farms in England. The Secretary of State for Business, Energy and Industrial Strategy has suggested that the Government might reverse its effective ban on onshore wind farms. Currently it needs only one objector to stop a development, but potentially a local consent solution might enable developments to proceed possibly in the form of community ownership.
Diversification can and has come in many different forms from B&Bs, holiday complexes, rural business parks and wedding venues to manufacturing including cheesemaking, wool- filled duvets and clothing, along with the production of gin, beer and cider amongst many other innovative and varied activities. One area which has seen significant diversification in agriculture is renewable energy development over the last three decades.
With the Government increasingly focusing on energy security, reducing consumer energy costs and its commitment to net zero, there has been no better time to consider making farms or estates sustainable. It is estimated that at any point in time a quarter of farmers and landowners are actively considering a green energy diversification strategy. With technological advances, changes in Government policy and the availability of land, I suspect many more will consider this route in the coming months and years.
However, before making any changes it is important to consider any inheritance tax implications to ensure your family do not end up with a large and unexpected tax bill.
Having worked in the renewable energy sector for many years acting for landowners, developers, contractors, and operators, I often get asked about more general questions about what to consider when embarking on renewable energy projects.
With this in mind, I would like to share my top seven tips to consider.
1. Aims and objectives
Understand and clearly articulate what the aims and objectives of the project are. They could include reducing expenditure to provide a better overall ROI, establish regular profitable income to support cash flow challenges, environmental considerations as part of a wider sustainability strategy or a combination to give a true vision. Throughout the process these should be front and centre of thoughts to ensure they are realised.
2. Policy guidance
As mentioned, national policy guidance to planning authorities is to support farm diversification. It would be prudent to review this guidance and the local plan to establish how the project objectives sit alongside these guidelines. If the local plan is not formed, this could be an opportunity to get involved in supporting the neighbourhood plan.
3. Market research
Sometimes it can be a case of “not seeing the wood for the trees” when looking at which option to deploy. Make sure you look at the various alternatives, which might steer you down a particular route. Initially, a wind farm might look the most appealing but consideration for other energy generation forms such as solar, bioenergy, air source heat pumps might be better solutions. With advances in technology, current thinking might be out of date. Often a SWOT analysis can support the decision-making process.
4. Business case
The vast majority of green energy developments are considered a success in terms of achieving their objectives. The two main areas of focus should be the financial feasibility and technical considerations of the project to validate the risks of the project. Often projects fail as the sponsor can go in with an “eyes wide shut approach”, not considering the major elements.
5. Seek support
Due to the potential complexity of the project chosen, it is unlikely that the farmer or estate manager will have all the knowledge to get the project from conception to completion and operation. It is wise to engage with specialists at the various stages of the project. Areas which could be included are planning, funding, legal and project management. For example, a farmer could engage a solicitor in relation to the grant of options and leases, detailed due diligence grid connection reports, ancillary documents such as direct agreements, and the sale of development land including clawback arrangements, options and pre-emptions. These are just some of the many areas that timely advice could be greatly beneficial.
Consider the planning process as a series of steps to get the approval to start developing the project. Get the support of neighbours and locals. Outline your vision with passion demonstrating the positive impact the project will have in terms of employment and sustainability before seeking a pre-planning opinion from the relevant planning officer and parish councillors. Create the story with visuals and a clear non-technical plan on how the project will be delivered along with how it complements the current national and local guidance.
As part of the project programme, which might need the expertise of a project manager, it is worthwhile to build in a proactive communication plan to address any concerns that stakeholders might have about the project regardless of size and complexity. It is always good to celebrate success and when the project is fully operational this would be a good opportunity to tell your story as this will build long term goodwill, particularly if future additional projects are likely.
For many years Clarke Willmott has been at the forefront supporting clients in the agriculture and green energy sectors. By building long-term relationships with many of our clients, not only do we provide seamless and timely legal advice but also keep clients abreast of regulatory, legal and political developments. Our nationally recognised green energy sector team supports landowners, developers, investors, contractors, operators and local authorities in achieving their objectives.