Solar in Ireland
The sun is an excellent source of free energy, which can be used to produce electricity as well as heat. The most common technology used for the production of useable solar electricity is photovoltaic, or solar PV, systems, which convert energy from sunlight into direct current (DC) electricity using semiconducting materials.
PV systems can range from small, rooftop-mounted or building-integrated systems with capacities from a few to several tens of kilowatts (kW), to large ground-mounted utility-scale power stations of hundreds of megawatts (MW).
Most solar PV systems, particularly European and US systems, are grid-connected, meaning that they feed excess power back to the electricity grid where it is consumed by residential, commercial and industrial users.
Solar in Ireland
Despite Ireland’s highly suitable levels of solar radiation, particularly in the south and southeast of the country, deployment of solar PV technology in the country to date has been almost non-existent.
Solar PV contributed just 0.001% of our gross electricity consumption in 2013 and it is estimated that there is currently less than 5MW of capacity installed across the country. The UK, by comparison, has roughly 9,000MW of installed capacity and Germany, Europe’s leading solar developer, has around 40,000MW.
The large-scale deployment of solar power in Ireland would provide an additional source of domestically generated energy, diversifying the fuel mix and helping to reduce our heavy dependence on imported fossil fuels.
Solar technology could also complement Ireland’s existing portfolio of wind farms, as solar electricity output is naturally highest when wind is usually at its lowest. Solar modules are far less intrusive than large wind turbines and can be installed and operational over a much shorter space of time.
In addition to the economic growth and creation of jobs that would likely accompany the establishment of a solar market in Ireland, the technology’s range of deployment options would enable Irish citizens and communities to better control their production and consumption of energy.
Lastly, solar PV has the potential to make a large contribution towards Ireland’s binding renewable energy targets for 2020, avoiding potentially large EU-imposed fines.
Driven by advances in technology and increases in manufacturing scale and sophistication, the cost of photovoltaics is reducing continuously. Cost reductions of roughly 80% between 2008 and 2013 alone have brought solar close to cost-competitiveness with conventional energy generation resources and other renewables.
Production costs are expected to fall even further this year and in 2017, meaning that several of these other energy sources are likely to be undercut by solar in the short-to medium-term future.
Absence of Government support
In addition to historically high equipment costs, the most prominent reason for Ireland’s poor performance in solar development to date is that, while there are some minor tax and building incentives for solar PV, the country does not currently have any suitable policy mechanism, such as a feed-in tariff or contract for difference, in place to financially support large- or small-scale solar PV applications.
However, the release of the Department of Communication, Energy and Natural Resources’ energy white paper (“the white paper”) in December 2015 has indicated that this is about to change.
Forthcoming support schemes
Following the recent closure of the national Renewable Energy Feed-in Tariff (REFIT) schemes, the white paper has committed to the introduction of new support schemes for a range of renewable energy technologies from 2016, which will include solar PV.
Surge in development applications
Solar developers have responded very positively to the white paper’s commitment on new incentive schemes, with interest at unprecedented levels. A number of large players in the European solar market have announced ambitious deployment plans in Ireland and are beginning to approach landowners to secure sites, in addition to applying for grid connections.
Some of the Irish semi-state companies, such as the ESB and Bord na Móna, are also assessing the potential for utility scale grid-connected solar power projects. ESB has also set up a joint venture with Kingspan Energy to bring rooftop solar PV to business customers.
ESB Networks is the issuer of grid connections in Ireland. To date, it has received solar PV applications which would provide just under 3GW (or 3,000MW) of power to the Irish grid.
Evaluating land lease offers
As mentioned, Irish landowners are currently being approached by developers attempting to secure locations for potential solar farms. Below is a list identifying some of the key points which landowners should consider when assessing a land lease offered by such a developer. This list is not exhaustive and it is highly recommended that landowners retain the services of legal and/or tax advisers with relevant experience to assist them with any offer evaluations.
To assist the evaluation, it is important to:
- Make sure that all the terms and conditions of any proposed offers, heads of terms, options and/or leases are received in writing.
- Ensure the offer contains relevant detail on the proposed solar project. Offers should clearly identify the proposed development type, size (in MW), number of acres required, and exact locations for any equipment.
Landowners should consider the number of acres they are comfortable with leasing to the developer. Typically, developers will seek five acres for each 1MW of solar development.
Developers will seek to lease land as close to power sub-stations as possible, as this will reduce their capital costs. Landowners should consider the proposed location of lands to be leased and the potential impact on existing land use. An exclusivity period agreement will commit the landowner to a single developer for a certain period. This is a due diligence phase during which the developer will likely examine whether the right conditions exist on the land for a solar farm. Landowners should check whether the developer has proposed an exclusivity period and, if so, for how long a term. A fee may or may not be offered for this privilege.
Alternatively, an option period may be proposed by the developer before the long-term lease would come into effect. Option agreements allow the developer to secure sites without commencing a lease. In general, developers will propose option periods of one to three years, with longer periods often accompanied with milestone payments. The landowner may wish to insert a clause into the agreement stating that a planning application must be submitted by a certain date.
Lease periods, sometimes with optional extensions, usually cover periods of 25 years and upwards. As such, landowners should ensure that they are fully content with entering into such a long-term arrangement.
Lease fees can vary substantially depending on the individual site. Proposed fee payments could be in the form of a price per acre, percentage share of revenues from the electricity generated on the site, or a combination of both. Most fees are adjusted for inflation, but it is important for landowners to clarify the inflation review process and intervals before coming to any agreement. It may be useful to assess compensation rates being offered for land leases to neighbours in your area. As mentioned previously, there is currently no Government support scheme in place for solar projects. As such, developers are uncertain of future revenue support for their projects. It is advisable that landowners don’t agree lease fees contingent on the level of revenue support from the Government, unless they are willing to share the risk on the final level of support.
The potential impact of solar development on agricultural operations such as grazing and land accessibility should be given serious consideration.
Additionally, landowners should evaluate any potential conflicts that the solar lease may have with any existing agricultural entitlements, tax designations and/or mortgage terms. Often, developers will agree to farmers continuing to graze animals on the land, as it will reduce their maintenance costs.
Landowners should ensure grazing rights are specifically covered in any agreement.
Developers will cover all planning, legal, engineering or any other professional fees incurred in relation to the planning and construction of the solar project, in addition to local authority rates once the solar farm is operational. Developers will usually offer to cover any professional fees incurred by the landowner in relation to the lease.
Landowners should consider the developer’s credibility and track record with similar projects, as well as their financial standing and access to funding. As the landowner is potentially providing exclusivity to one developer, they should ensure that they are selecting a strong partner who will deliver on their proposals.
Developers may seek the ability to assign the option and/or lease agreement to other parties. Landowners should seek to have this assignment subject to their approval. At a minimum, developers should have to seek landowner approval for assignment to third parties, while assignment to connected parties (eg subsidiaries or parent company) could be permitted without landowner approval.
Analysis of lease offers against the outlined list should assist landowners in evaluating offers on a comparable basis in order to consider which offer provides the best choice for them. We would recommend that landowners ensure that they take ample time to review lease documents and seek independent advice from legal and tax specialists before signing any lease agreements.
This article first appeared in the Irish Farmers Journal on the 18th June 2016