SUBSIDY changes are making new windfarm developments less attractive than they were – but there is still a future for the industry.
So said CKD Galbraith’s head of utilities, Mike Reid, who cautioned landowners against signing away their rights to any future upside if they are approached about re-negotiating previously agreed terms with developers.
Windfarm installations in Scotland have all but ground to a halt due to UK Government cutbacks in renewable-energy subsidies. The large-scale Renewables Obligation closes to all new generating capacity on March 31, while the Feed-in Tariffs supporting smaller-scale generation are in the grip of sharp ‘degression’ which has stopped the majority of developments.
But there is normally a significant time lag between terms being agreed and the commencement of any development, often longer than five years. There are, therefore, terms agreed for projects that haven’t yet commenced development which give the landowner a far higher proportion of the return from power production than the developers are now happy with, since the pre-cuts deals were often based on the developers taking the guaranteed subsidy. 
For larger projects – multiple-turbine sites with an installed capacity in excess of 10MW – the reduction in support has reduced turnover by over 50%. Developers are now basing their financial calculations on the wholesale electricity price to assess the viability of any project.
For leases agreed (for main sites or access) for these larger windfarm developments, where construction hasn’t commenced, Mr Reid reported that landowners were being approached to renegotiate terms. 
“Whereas renegotiation will inevitably reflect the current viability of projects, landowners should seek to include provisions that would allow them to benefit from any subsequent uplift in the scheme’s profitability,” he advised. “It’s important to have these discussions before new arrangements are settled, as if the situation improves, developers won’t have any reason to agree new terms when they have a watertight legal agreement. 
“Prior to the commencement of development, if landowners aren’t willing to renegotiate, they may find their project abandoned by the developer and, for many, a lower overall return from a renewables development will be better than none at all. Landowners should also take into account the return they are receiving from the land at the moment when assessing the benefit of any development rather than comparing the proposals to what they might have had under the previous agreement had the development progressed. 
“These considerations apply to proposed developments and in this low-activity environment, windfarm developers have the upper hand, so be ready if and when approached by them. We at CKD Galbraith have noted a tendency for landowners largely to accept terms that only reflect the current situation.
“We would urge landowners not to rely on developers’ standard-form provisions,” he said. “Negotiations are a one-off opportunity to set revenues for very long periods and it’s important to reflect on possible alternative scenarios.”