On-site energy schemes – what are the opportunities for landowners?

Published September 2019

Hugh was interviewed by AMP Clean Energy for their guest blog. He discusses the on-site energy opportunities for landowners and developers, and why decarbonisation is driving demand for sites that can host flexible generation assets.

This article was first published on the AMP Clean Energy website. 

As we enter a new decade, a clear focus on decarbonisation means that demand for electricity is set to grow, particularly in urban areas. This journey towards a low-carbon future also means a move towards a decentralised, flexible energy system, with a host of smaller scale generation assets providing power when and where it’s needed most.

AMP Clean Energy sat down with Hugh Taylor, CEO at Roadnight Taylor, to discuss the opportunities the changing energy system is presenting to landowners, landlords, land agents and developers – particularly how landowners can create new revenue streams from rent for an on-site energy project situated on otherwise unused or lower-value land.

With the drive towards decentralisation, there will be an increased focus on finding sites that can host a smaller scale energy project. However, not all sites will be suitable, so what characteristics make a site attractive to a developer?

“The starting point is always grid proximity i.e. how close a site is to the local DNO’s assets, and for a gas genset project, how close it is to the gas grid at suitable pressures.

“These are things a landowner wouldn’t necessarily know. With gas, for example, they may be aware of gas going into residential developments and smaller businesses, but they won’t usually have visibility of where the larger gas mains are.

“From a planning perspective, proximity to dwellings is also an issue – particularly for a gas genset project as they can generate noise – so this makes a site in an industrial and commercial setting a more attractive prospect.

“However, proximity is only half of the story – the other key issue is grid capacity. Grid availability is changing all the time, so there is a need to marry up proximity, capacity in the electricity and gas grids, and planning concerns before a scheme is considered viable.”

If a landowner is approached by a developer interested in installing an on-site generation project, what questions should they be asking?

“The key point here is, do your research and due diligence on a potential developer. However, it’s always best to seek the advice of an independent consultant.

“There are several things we look out for in a developer to determine whether it would be a good fit for a landowner client.

“Track record – does the developer have a strong track record in the specific technology they are proposing, as well as generally in power and energy developments?

“Funding – how they are funded is really important. We like to see a developer as a developer-operator i.e. not someone who just wants to flip a site, but someone who wants to hold the scheme as a generating asset for the long term. Also, a landowner needs a lease to make revenue, and the lease doesn’t get executed until the project has funding and is going into the construction phase. So, choosing a well-funded developer that has a bankable model and is likely to hold the project in the long-term, means the asset is more likely to get built.

“Look at the team – Where a developer is new and doesn’t necessarily have the established track record, we look at the team i.e. what expertise do they have, what previous roles have they have held etc. This builds a picture on who you will be relying on to get the project built… and get the ground rent flowing.”

From your experience, which technologies are experiencing the most demand?

“At the moment, where we’re seeing the developer community focus its efforts is on large scale solar, which has seen a resurgence despite the closure of the Feed in Tariff and Renewable Obligation incentives. Before that there was a lot of heat in the battery storage site acquisition market, although this has cooled considerably.

“Of all the markets, gas genset has been the most consistent over the last five years, and now that the Capacity Market has been reinstated, we’re expecting to see demand for these sites strengthen – although in reality, this market was in more of a ‘go slow’ than a full retreat.

“So, while there is the most ‘noise’ about large scale solar – gas has remained the most reliable.”

When you’re reviewing projects, is it just renewable or cleantech technology you’re interested in?

“While there has been a significant increase in interest in renewable technology – particularly solar – we are interested in any power or energy generation – such as gas gensets – or a storage scheme that provides the best opportunities for a landowner or for a developer.

“Few sites will be suitable for more than one technology, so it is important to assess the feasibility of a site across each of the prevailing technologies – and at the various scales and voltages – in order to establish which will deliver the best returns for a client.”

What are the main benefits for landlords and property owners in exploring energy opportunities for their land?

“The main benefits are two-fold. Firstly, the landowner receives long term, reliable ground rent – as broadly, the energy market isn’t as affected by wider economic issues as other sectors. An energy project with a 15-25-year lease provides secure income for a landowner, and typically for a piece of unused land for they wouldn’t necessarily attract a normal tenant.

“Secondly, there is minimal financial risk – an energy project can come with literally no cost to the landowner. There is no up-front investment and, while they should be mindful of any tax implications, the landowner should be insulated from legal and professional fees.

“In short, there aren’t many other ways you can get long-term, reliable revenues for no investment on a piece of land that is otherwise redundant or low value.”

What advice would you give to landlords and property owners who want to explore energy opportunities for their land?

“The main piece of advice is to be proactive – don’t wait for a developer to knock on your door. For many landowners, securing a scheme can be game-changing, but if there is capacity available on the local network, there will only be enough for one scheme. Moving fast to secure vital grid capacity ahead of any neighbouring landowners is critical, as other sites will compete for the finite grid capacity in the area.

“In addition – as I’ve mentioned – seek professional advice to thoroughly research a potential developer. Independent consultants can help when deciding which schemes are viable or not.

“While getting permission to connect to the electrical grid is a vital factor in determining the success and income from any scheme, it is also important that your consultant applies for the appropriate technology for the site – few sites are suited to all technologies, and a grid application can only be for one technology.”

Do you predict an increase in demand from energy companies wanting to rent sites to install smaller-scale generation assets?

In short, yes. This is due to a number of reasons. Firstly, the decarbonisation agenda has been accelerated – and this is driving demand, at a national level, for flexibility. Aurora Energy Research is predicting a trebling in the deployment of flexible assets between 2020 and 2035.

“Secondly, the electrification of heat and EV charging – which will predominantly be in the urban environment – will result in an increase in demand for flexibility services from DSOs.

“Finally, the alternative is connecting bigger schemes at higher voltages – at higher cost, higher risk and with far longer timeframes. It is likely, therefore, that developing a larger number of smaller, local flexibility schemes, that can be deployed quickly and at a lower portfolio risk, will increasingly be the deemed the more appropriate strategy.”

Are there any barriers to growth of this market e.g. reduction of incentives etc?

“Broadly, it is a very positive outlook. However – particularly with gas gensets – there can often be a perception issue, both at a planning and at a local community level, that doesn’t do justice to the technologies.

“What is often misunderstood is that gas gensets are very much supporting the decarbonisation agenda. Without these technologies, we wouldn’t be able to decarbonise at the low cost or high speed we’re seeing today. There is a need to educate on gas gensets’ role within our changing energy system, in order to counter the perception that it isn’t a ‘clean’ technology.

“The technology lends resilience to the grid, so we all experience fewer power outages. While the blackouts on 9 August are rare events, we would either be seeing far more of them – or paying a lot more for our electricity – without gas gensets as flexible assets. Smaller assets that can react quickly can help keep the lights on, both locally and nationally.

“In addition, gensets can provide support during major weather events. For example, when the ‘Beast from the East’ hit the UK a couple of years ago, batteries helped to keep the lights on for about half an hour. It was the extended flexibility of gas gensets that saw us through a couple of days of harsh weather.

“Basically, without flexible generation assets, we would have serious problems.”