Clean energy: Asset life extension projects

Background and context

The lease term for energy projects (wind, solar and beyond) has historically been set for a period between 25 and 30 years. This was driven by a few primary factors including time limited planning permissions, the subsidy period available through the Renewables Obligation (RO) and the life expectancy of operating assets. While in cases leases did include in the ability for Tenants right to extend via an option to renew, this was not always standard or market practice.

The current position

Over the last few years the subsidy-free market has matured as the sector has become more comfortable with the viability of operating in a subsidy free environment. Alongside this we have seen developments in wind and solar technology which can extend asset life expectancy. This combination of factors has resulted in a number of asset life extension programmes which focus on:

Extending the term of the existing lease.
Amending the planning condition restricting the duration of the lawful use of the asset. In England and Wales such minor material amendment applications are made under section 73 of the Town and Country Planning Act 1990. The equivalent in Scotland is section 42 of the Town and Country Planning (Scotland) Act 1997 and in Northern Ireland it is section 54 of the Planning (NI) Order 2011.

How to extend the lease term?

While there are a number of ways in which the lease term can be extended, the most popular, and in many respects straightforward, model is a deed of variation which introduces an option to extend the lease term by way of three x five year extensions.

This is likely to be documented by an option to renew in England & Wales, whereas in Scotland an option to extend the term of the existing lease is more common. While the option to renew/extend does not need to be on a five year by five year basis, these are popular terms for both parties as they provide the flexibility of putting arrangements in place at the outset which will be reviewed at a date in the future.

Once agreed, the deed of variation will be registered at the Land Registry or Land Register of Scotland and binds successors in title.

Consents

If the energy asset is subject to a funding arrangement or other security then consent to the deed of variation will be required. This should not be seen as a barrier to lease extension as it is often as simple as obtaining a straightforward letter of consent from the funder. It is worth noting, that if the site’s Landowner has funding arrangements in place then consent from their funder would also be required.

Other considerations

There may be a number of other property documents beyond the main lease including easements (servitudes in Scotland), substation leases, access leases, noise agreements decommissioning bonds etc, in which any arrangements in relation to the lease extension would need to be reflected. This is a relatively straightforward exercise.

Section 73 applications

In England and Wales we are seeing an extension of a planning permission being effected through a section 73 application which varies or removes conditions associated with a permission. However, section 73 may is unlikely to be appropriate where the restricted duration is expressly referred to in the description of the permission. This will need to be reviewed on a case by case basis.

There are similar processes for NI and Scotland; the relevant legislative provisions (s54 and s42 respectively) mirror those in England and Wales and the same principles and considerations will apply.

Conclusion

The Clean Energy Team at TLT have acted in relation to a number of asset life extensions. Once the principle has been agreed with the landowner the process is relatively straightforward. And the key to getting an agreement in place which works for both parties is not over complicating the asset life extension arrangements and ensuring that unless there are any other key elements of the lease arrangements that need to be varied it is limited to the option to renew/extend.

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