Historical performance data from older PV plants and improvements in technology have meant that PV owners are increasingly likely to invest in extending the lifetimes of the solar PV assets in their portfolios. Commonly referred to in the industry as asset life extensions, these involve a number of steps, the ultimate objective of which is to ensure that the PV plant can legally continue to operate for as long as it is profitable thus maximising the project’s ROI.
Whilst PV plants are built to last for 25 years according to their EPC contracts, there is increasing evidence to show that they can in fact continue to operate effectively for longer than this. Experts often point to European solar installations from the 1970s and 1980s that have performed consistently since the time of their installation.
So, if the technology can really withstand the test of time, how can PV installation owners ensure that they tap into this value? This is where asset life extensions come in. Effectively these consist of extending the terms of the installation owners’ legal rights to maintain the installation in place for as long as it can continue to operate. The key pieces here are the extension of the planning permission term and either a direct extension to the lease agreement with the freeholder of the site or a variation to that lease agreement to include an option to extend the term at a fixed date in the future.
Extensions to the planning permissions would have to be sought by way of an application for a variation of the condition of the planning permission relating to term. National planning policy dictates that local planning authorities should approve applications for sustainable development where possible. The National Planning Policy Framework (“NPPF”), as updated in February 2019, explicitly says that, “Plans and decisions should apply a presumption in favour of sustainable development”, and that, “Decision-makers at every level should seek to approve applications for sustainable development where possible.”
The NPPF goes on to say that the planning system as a whole should aim to support the transition to a low carbon future in a changing climate and specifically states that it should support renewable and low carbon energy and associated infrastructure. In determining planning applications for renewable development, applicants are not required to demonstrate the overall need for renewables and the local planning authority should approve such applications provided its impacts are, or can be made to be, acceptable.
As PV installations are made of lightweight structures and fixings that can easily be assembled and disassembled, the generally accepted opinion is that they do not cause any material or long-term damage to the agricultural land on which they are situated. Typically, owners have obligations to dismantle and remove the installation once it stops operating and to restore the site at their cost.
This means that in theory there should be no objections to an extension of the term of the planning, provided that there are no issues with the site contravening any existing planning conditions and that there are no issues with the landowner – who, as a potentially impacted party, would be able to object to the application. It’s advisable to ensure that all is as it should be in terms of planning compliance before sending off the application to the planning authority. It is also worth calling the landlord to make sure that they are happy for the application to go ahead and they have no reasons to object to it. Once this is done, the application process is straightforward and can be completed via a nationwide online portal.
The more complicated part can be the negotiations with the landlord to achieve the best possible variation terms. Ideally, PV plant owners will want to sign an option agreement to extend the terms of the lease at a fixed date in the future, allowing them to defer the decision whether to extend the term or not based on the future performance of the plant. Consideration for this may include a premium payable upfront, a structured rent increase later down the line or additional works undertaken on the site, or a combination of these. Generally, provided there are no specific disputes between landlord and owner, landlords are happy to agree to an extended term or an option agreement as this ensures their rental revenue stream in future years.
Where the plants are financed, facility agreements will often include a covenant that the lenders must consent to any changes to the project documents which typically include leases. Owners should remember to check their facility agreements for this covenant and if there is such a provision, they should notify the lender before entering into any new agreement relating to their leases. It is also worth remembering that if a lease agreement term is varied, SDLT may become chargeable as though a new lease agreement had been entered into. This would require an SDLT return to be filed and SDLT to be paid to HMRC
At QE, we provide a range of asset life extension services – as well as loan compliance and SDLT services – and would be happy to discuss these with you if you wish. If you are interested in this, or any related matter, please contact us via the enquiries section of our website.
This article is written and edited by Shirine Azzi. She can be contacted at: firstname.lastname@example.org