The drive to net zero is ramping up, with a target date of 2045 in Scotland and 2050 in England, and the number of new onshore renewable energy developments continues to grow rapidly. Solar energy developments are no exception, albeit with fewer located in Scotland than in England due to the obvious differences in climate!
As with all energy developments, a robust contractual framework is the primary aspect of allocating risk and ensuring effective project delivery. There is a wide suite of agreements which may be entered into in the context of a ground-mounted solar farm, however, the principal contract forms involved are i) option agreements, ii) leases, iii) EPC (engineering, procurement and construction) contracts and iv) O&M (operations and maintenance) agreements.
Where to start?
The earliest stages of a solar development involve identifying suitable land for the development and securing the appropriate rights over the land (as discussed in my previous blog Landowners - what should you do if you are approached by a developer regarding the lease of your land for a renewable energy development, and what's in it for you? | Brodies LLP). A landowner and a developer will generally put an option agreement in place, which will secure the land for the developer, allowing them time to carry out their own site investigations, obtain all necessary planning consents and confirm availability of grid connection. Securing long-term rights and exclusivity over the site is essential – the developer will want to avoid a situation where it spends time, money and effort investigating a site only for a third party to take over the site before the developer has an opportunity to enter into a lease agreement with the landowner. Aside from exclusivity, key terms within an option agreement include the length of time in which the option can be exercised, an obligation on the landowner to support the planning application (or at least not to do anything to jeopardise it), and the option fee.
Another major consideration for the developer at this stage is where the energy produced by the development will end up – no developer wants to commit to the expense of a lease and the construction costs associated with a solar development without first having an offtake agreement in place. Offtake may be via a connection to the grid (which can be difficult to obtain due to significant ongoing demand), or an agreement for use with a private buyer.
Once the necessary investigations have been completed to the satisfaction of the developer and any investors, and all relevant permissions and consents have been obtained, the developer and the landowner will enter into a lease. The term of this lease will generally be between 20 and 30 years and will include details of any rent payable, rights in favour of the developer (such as to lay cable, access the site, etc.), rights in favour of the landowner (such as grazing rights) and any decommissioning obligations, potentially with a schedule of conditions and decommissioning bond attached.
Building and Operational Requirements
The next major contractual phase is the EPC contract, which the developer enters into with a third party contractor, generally following a competitive tender process. This agreement governs the design and build of the project. Key provisions within this agreement include the scope of work, key milestone and payment dates, delay liquidated damages, defects liability and performance guarantees relating to the output obtained from the installation.
An O&M agreement will be negotiated, often with the same EPC contractor, to cover a specified period after completion of the build. The O&M agreement should clearly set out the obligations of the contractor in respect of planned and unplanned maintenance, availability guarantees (the agreed percentage of time that parties agree the development should be operational and generating power), and limitation of liability. There will also need to be a clear statement on when the EPC contract obligations end and the O&M obligations begin to ensure proper management of risk and liability.
Additional Considerations
In addition to the agreements detailed here, there may be multiple other agreements required in the planning, design, construction and operation of a ground-mounted solar farm, depending on how complex the project is. These include connection and sale agreements for the energy produced, additional property agreements (such as wayleaves and servitudes, or easements depending on where you are in the UK) and possible security and step-in arrangements depending on the funding structure for the project.
Therefore, as with all energy projects, careful and precise contractual drafting, including robust risk and liability structures, are a key part of the effective delivery of solar projects.
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