Developments of new solar projects have become increasingly more popular in the North of England again after the government axed the support mechanism back in 2015. It has become clear that with the current lower equipment costs, increasing energy prices, and ever-improving technology, solar has made a comeback for its financial viability even without support from the government.
The key question is how should you as a landowner decide whether to lease your land to the solar developers?
Some of these answers may include the size of the site, suitability, grid capacity, expected financial returns, and of course the ‘Big T’ – tax implications.
Sizing of the site
It can be assumed that 1mW of installation will require approximately 2 hectares of land. Generally criteria for a site is the bigger the better – meaning the development companies will benefit from economies of scale.
Typically, in the north, sites tend to be over 40 ha however this is dependent on the individual project.
Sites should ideally be south facing as this will benefit from sun and daylight for the longest length of time in any one day, however, this doesn’t mean that if a small portion of the allocated land is north facing the whole site would be discounted.
In terms of the topography of the land preferences from developers is that the land is relatively flat, this stops shadowing, decreasing the amount of generated energy.
Similarly, the proximity of the nearest sub-station is vital, as the overheads to install power cables back to the station can incur large costs.
Using in-house mapping technology and Ordnance Survey data, every 50m² of the UK can be colour coded into the bearing of which the piece of land faces. Dominantly south-facing slopes can be highlighted in green whilst dominantly north faces slopes in red. When combining this visualisation with solar irradiance and generation availability substation data, we can start honing down to the sites likely to be most attractive to solar developers.
As solar schemes were re-introduced it was clear that the aim was to develop in the south of England, however, opportunities have brought the developers further afield as the spare grid capacity in the north is greater than that of the south.
If there is grid capacity on a nearby line it is vital to act quickly as it is likely that there will only be space for one scheme. However, to get the best agreement professional advice should be sought.
When the previous scheme was thriving the expected rent of such a scheme would probably be in the region of £1,000-£1,200 per acre per year, however, this is a little exaggerated in today’s market.
Having negotiated and dealt with schemes that are currently ongoing the average rental figure is in the region somewhere between £700-£850 per acre per year. Although if your site fits the bill then an additional payment may be sought linking it to the site revenue – not all developers will appreciate such an approach.
If you compare this to the current rent of arable land at approximately £120 p/ac. However, it is not all as it seems, the ‘Big T’.
When renting land for a solar scheme this does not qualify as agricultural use, although it is appreciated that you could still graze livestock on the land simultaneously. The primary income from the land will be the solar scheme not the livestock therefore non-agricultural use takes precedence.
The big drawback of solar schemes is the impact on Inheritance Tax. Under the Inheritance Tax Act 1984 Section 160, ‘assets should be valued at open market value at the date of death.’ The level of revenue which is generated by the solar scheme may significantly increase the value of the land underneath.
The land will be let on a commercial lease and therefore the previous benefit of Agricultural Property Relief may no longer exist. Albeit the likelihood of benefitting from Business Property Relief may still stand – however legal and accountancy advice should be taken on this before entering any agreement. The tax cases of Balfour v Brander (2010) and Farmer v Inland Revenue Commissioners did in fact establish that Business Property Relief could be available if the rental income is not the main activity on the farm but is ancillary to the farm business.
The area is complex and professional advice is advised to ensure your plan is in place before the sunset!
If you would like to discuss any of the information further or think your farm/land may be of some interest and to explore the options please contact Danielle Galvin on 07876 860640 or click here to send an email.