Developing energy projects for the long-term

Amy (00:02)

Hello and welcome to Energise2030, a podcast from TLT, unpacking the forces reshaping the future energy market. I'm Amy Campbell, a managing associate at TLT, specialising in a broad spectrum of renewable energy transactions.

Today, I'm joined by Chirag Rao, head of legal at Field, who leads on the legal strategy and operations behind Field's international development pipeline. We'll be exploring project development and structuring, and the mechanisms developers can use to navigate these challenges.

It's a pretty dry topic, but we'll do our best!

Chirag (00:34)

To make it as exciting as possible!

Amy (00:37)

OK, so the first question we have is developing good relationships with landowners is key to delivering successful projects. What issues typically arise when negotiating option agreements and lease terms, and how have you managed these?

Chirag (00:52)

Well, thank you so much, Amy, and thank you TLT for having me on this podcast. I think it's the second one you are having - and so I’m delighted to be here.

In answer to your question, look, I mean, land agreements, option agreements, lease terms are really foundational. They're fundamental - and getting them right at the outset is super important for the entire life of the project and getting them wrong could create friction at a later stage.

So, I think the issues that I see most commonly falling into these categories are firstly on option periods. Developers like ourselves need a long enough runway to navigate planning, grid dates, and signing our construction contracts, particularly now with grid reform and planning delays, there's a lot that needs to be unpacked and therefore it can be challenging keeping the landowner always on side when the dates keep just going back and forth. That is why having that flexibility within the terms and having a really positive relationship with landowners - which we always aim for - is really important.

The next is really on the use of landownerships wider land. You know, clearly, we need rights over the wider landownership for things like cable routes and BNG, construction compounds, and utilities. So, it's always a very fine balance between what we need for our development, but also not sterilizing the landowners land, you know, and also allowing the landowner, for example, to develop if they need to in the future. And of course, as we will discuss later, any adjoining development will also probably need the same things as we do. So, baking in that flexibility and that collaboration is really important.

I would say also things like decommissioning, obviously decommissioning is a hot topic and so coming to a sensible agreement on how we decommission is really important, and we take that very seriously. And finally, ensuring that we have a bankable project, allowing ourselves to be as pragmatic as possible, but at the same time there's certain things that we just cannot agree to because a lender will not accept them.

Amy (03:01)

I think that's the thing, isn't it? It's getting past that hurdle of something that you think is okay but knowing that another set of solicitors are going to have their eyes all over it as well.

So, in terms of long-term landowner management, having that relationship with landowners across the development and operational phases is obviously crucial. What does your strategy look like for that?

Chirag (03:24)

Yeah, I mean, look, the honest answer is we take that really, really seriously as the responsible developer that effectively constructs, operates and also optimises. And so, for us, a long term relationship is really important.

Yes, within the legal framework - there's only that much you can do with legal framework - it's about having a you know, it depends on communication, trust, and that has to be built into a way that is not just in the documents, but how we operate. So, from a legal structuring perspective, we try to build in proactive touch points, clear update obligations during development, keeping the landowners informed as much as possible during planning, grid connection time scales, and any other material changes.

But ultimately, we do that as part of our programme as well and as part of our process. So the transition points are particularly important, from origination to development, development to construction, construction then to operation. And we've built that into every single phase of our processes to make sure that the landowner experiences a really smooth transition and knows exactly who they're dealing with and that person has had a full handover. So, we bake in that communication through our dedicated PMs through the process. I think for operational projects also making sure that there's a named contact because to deal with payments of rent and rent reviews and that's really important.

And I think the broader point is that these are 30 to 40 year relationships. So, you know, we as developers don’t want to treat this as a one-time transactional exercise and therefore, work with the landowners as long-term partners from day one.

Amy (05:15)

Yeah, totally. And I think that communication piece is so important. I've only seen one option notice be disputed ever. And in that particular scenario, the developer had never been in contact with the landowner since they'd bought the project. And I said, “Have you got an email address or contact number to kind of chat this through with them?”, because the dispute came through solicitors. And they said, “No, no. We don't have anything”, and obviously, that could have been avoided if the developers had taken the landowner on a journey. So, I think that's so good that you guys do that.

So, with development levels at an all time high, projects are often located next to other developer schemes. How do you ensure effective collaboration, both between landowners and developers?

Chirag (06:00)

Yeah, I mean, this is, I think, one of the most complex and perhaps underappreciated challenges in the market right now, and the pipeline across storage, wind, and solar has grown dramatically, as you've said.

It's quite common then for a project to be sitting next to another developer’s scheme, which we have found on many occasions and which you've seen as well.

Amy (06:22)

It's not like the good old days, where you could just have -

Chirag (06:25)

- just have one.

Amy (06:26)

Exactly.

Chirag (06:27)

From our perspective, the starting point is early engagement, early identification. We always look to try and identify neighbouring schemes as early as possible through the planning process, the grid connection process, and market intelligence.

I think as soon as we identify one, as we have done, then the question is always what's the nature of the interface and what's the basis of the collaboration? Sometimes it's very straightforward, you know, with crossing agreements in other occasions it can be more complex and you need to move quickly to get these conversations had and structured, either with the landowner or with the adjoining landowners and baking that into your option agreement or your land agreement is really important and having those early conversations, which my origination colleagues are doing very often, is really, important.

And I think on the landowner side, it's probably more manageable than one would expect because all the adjoining landowners will want the same things as we want. Therefore, it's really important to manage that tension carefully and that genuine competition and be as pragmatic and commercial as possible.

So just tying into this, I think it'd be really good to get your view, Amy, on what you're seeing in terms of when neighbouring developments arise. What's the best practice for structuring project legal frameworks?

Amy (07:48)

I think the key is early engagement before it becomes time critical. Because that's when parties have to make concessions that they really don't want to have to make because there's just no time. Parties should be thinking about being amenable to ensuring that both parties are able to happily coexist.

The world has changed quite a lot as we were saying, from when developers could have comprehensive exclusivity on the landowner’s wider landholding, and neighbouring projects are now a reality. So, it's about communication to work out where are the potential conflicts and the rights that are required and how those can be worked through. And is that shared access? Is that cabling areas? And that's where shared infrastructure or interface agreements come into play.

Chirag (08:32)

Yeah, no, I absolutely agree with you. And I think making sure that from a legal structuring perspective that you get things right from the outset and ensure you've got the key building blocks. And obviously, alongside that, having those open conversations not just with the landowner but the adjoining landowners is really important.

I guess my next question for you Amy was - where you’ve got adjoining landowners, you've also got a lot of shared infrastructure and collaboration. When managing interface agreements, which you just referred to, what key considerations should developers like ourselves continue to be aware of?

Amy (09:19)

Yes, so interface agreements, they're becoming increasingly common and they can be pretty basic, but the key questions have to be, well, what are the shared areas required and when does each party require such areas and is there a conflict on when the parties will require such areas?

So, for example, if you take access roads to a development. During construction, that access is obviously critical and it would be pretty unlucky if those rights were required over the same areas at the same time. Therefore, it should be possible to negotiate a timetable which facilitates that access for each party. And the legal documents usually require each party to act reasonably, and it prescribes any limitations or requirements around access. So timing, obstruction, maintenance, payments, and if you're upgrading a road as well.

And just coming back to something that you said earlier, I think that, you know, we all kind of hope, don't we, that we draft these things and they just go into a box and they're never going to be used again. But actually having that framework there to keep everyone honest and right is a good way of conducting your business.

Chirag (10:23)

Yeah, absolutely. And one follow-up question, Amy, is when you talk about interface agreements and a collaboration, what are the things that, from a bankability perspective, that we should always be aware of? And you're saying Lender's Law is always asking on due diligence.

Amy (10:39)

Yeah, so I think fundamentally, is the developer going to be restricted or prohibited from access at any given time? Now that's less of an issue if it's not during a construction period, but if it's during construction, the bank is going to want to see that you can have that access. And is the developer going to be left out of pocket? You know, are they going to do a capital contribution to an upgrade of a road that's not going to be recouped from an adjoining developer? And if so, have they built that into their project finance basically? Is that covered?

Chirag (11:09)

Yeah, absolutely. Absolutely. I think it's really important, like, you know, you’ve got the adequate, appropriate step-in rights and the ability to, step in if something goes wrong.

Amy (11:22)

So, I think that that's all we have time for. I've loved chatting to you today. Thanks for listening to TLT's Energise2030 podcast.

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