The uptake of commercial solar development in Scotland is steadily increasing. In July this year Scotland's largest solar farm opened - Errol Solar Farm, with a generating capacity of 13 megawatts and an array of 55,000 panels over 70 acres.
Despite energy policy uncertainty and an erosion of subsidy support, solar energy remains well placed to compete in a subsidy free market. With falling technology costs, ease of deployment and a wealth of expertise in Scotland, we are likely to see the cost of producing solar power reach grid parity in the near future.
The Scottish government has been a key supporter of the solar industry. We are expecting and hoping for more of the same, particularly in devolved areas such as planning policy and taxation. A Scottish energy policy review is currently underway.
A subsidy free landscape is inevitable. There is a need to innovate and look at ways of delivering projects more efficiently. We have already seen a change in commercial expectations by landowners, their agents and their lawyers, resulting in quicker lease completions.
The increased flow of transactions had led to documents becoming more standardised and the old sticking points within solar leases and power purchase agreements are disappearing. As a result legal negotiations are taking less time.
But more can be done to overcome some of the barriers and maximise opportunities associated with solar development.
The same issues tend to arise during due diligence. Some of these need to be addressed by entering into agreements with third parties, which can lead to delays. For example mineral reservations, access restrictions, utility wayleaves and servitudes with no build zones and obtaining vacant possession from crofters, agricultural tenants or long term tenants.
It is best practice to carry out a high level 'red flag' review as soon as possible. This will identify whether such issues are capable of being overcome by agreement or whether the costs associated with reaching a resolution are prohibitive.
Other title issues, such as restrictive title conditions, ownership ambiguities and boundary issues can be dealt with quickly and effectively through title insurance. Title insurance premiums can be relatively modest and policies can be relied on by both project successors and funders.
Another useful remedy is to seek an order from the Scottish Lands Tribunal, to vary or discharge a problematic title condition; particularly where the condition is no longer relevant or the beneficiary cannot be traced. This is often underused due to a perception that the process will be drawn out and expensive, which is rarely the case.
To keep up with such a rapidly evolving sector it is important that we 'future proof' our leases.
Leases should allow for co-location of battery storage and where possible, complementary technologies such as wind turbines.
Key terms to address in the lease are:
The lease may also provide for a rent review on completion of co-location works; ensuring that the landlord benefits from the expanded use of the site.
In order to maximise the potential of a site and benefit from future efficiencies in technology the leases need to allow for extension of the lease term and repowering or replacement of the solar panels.
Direct wire leases should also provide the ability to reconfigure the solar infrastructure and equipment for a grid export scenario. This allows for a 'Plan B' if the power purchase arrangements at the site are no longer viable. This could be due to insolvency, change in tenant, breach of the power purchase agreement or otherwise.
It is also important that solar leases contain the key terms that a funder or purchaser would expect to see from the outset, including:.
The lease should not contain any provision that permits the landlord to interfere with or disrupt the generation of power, including landlord break rights.
It will be interesting to see if the growth in Scottish solar continues. There are certainly opportunities notwithstanding the curtailment of subsidies. Arguably, the reduction in financial support has prompted more efficient and better working practices; forcing the solar industry to find new ways to innovate and overcome barriers to development.
But this needs to continue. It can be achieved when securing property rights by future proofing leases to allow for innovation, expansion and funding; by taking a commercial and proactive approach to title issues and by avoiding protracted negotiations, presenting balanced industry standard legal documents.
Richard gave a talk on this topic at the Scottish Renewables Solar Conference.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.