10 Trip Hazards in Renewable Energy Projects

This list came about from a discussion I had with a client about what areas will cause a developer most issues when moving towards project finance or divestment. The issues listed below are far from exhaustive, they are entirely subjective in their importance. But they all happened. Essentially, these are simply ten areas I have personally come across when advising clients in the financial close stage of a project.

Its also important to remember that a lot of these can be avoided and managed by early engagement. Also, sorting these issues out, anticipating them and putting them to bed are often driven by experience.

Also, its worth noting that I am not a lawyer. These observations are experience driven from a developers perspective.
(Note: all locations have been changed to protect confidentiality)

1. Failing to act in respect of existing tenancy agreements
I found this on a development I worked on in the Borders of Scotland. An existing tenant was allegedly on board with the project and as he was a friend of the landowner, no one felt that a legally binding agreement with the tenant should be pushed. However, as the project moved inexorably towards financial close, it became clear that the tenant was far from ‘on-board’ with the project. This led to added delays, complications and a whole lot of additional legal agreements requiring to be entered into. The tenant did very well out of it and the developer / land owner had to dig deep to get the project across the line. A situation which could have been avoided had the issue been addressed by the developer at an earlier point.

2. Applying for the grid connections for several projects in one grid application
You have several projects in close proximity or several technologies connecting into the same point. To manage your grid application fees, you decide to make one application for all projects. The key issue with this is that funders will want security over each project independently of the other projects. So, the development costs may well stack up if the projects are funded together. But, individually, there is a problem. Key point is to ensure the financial model for each project takes account of all the grid costs – even if it for all the projects you are seeking funding for. Because that is how a funder will view it.

3. Cable route sits outside the planning consent boundary
To are connecting to the grid and your grid connection planning consent has a red line boundary. You have to move the cable a little to the right due to ground conditions. As the red line boundary is so tight, you have moved just outside the redline on the consent. You now need to apply for a variation which involves a consultation period. You have now lost 6 months on the project. This happened in a project I advised on in the Central Belt. The developer took the view on the next project they worked on to have a very wide planning application boundary in order to circumvent this issue.

4. Failing to obtain the consent of an existing security holder
Where a landowner has multiple operations on his land, you may need to get consent from several existing security holders to access your site or to engage in construction activities. I was involved in a project in Aberdeenshire where we had to take turbines up an existing road past several other operations which had existing securities on the road. This basically protected their rights of access and their ability to ensure their operations wouldn’t be disturbed. There was one security holder who would not agree to granting consent and this put the whole project in jeopardy. Had the land owner not strongly intervened, it would have been a real problem when it came time to construct.

5. Early work commences pre-contract agreement
This can happen where a contractor has been commissioned to build roads and hardstanding. Although the price and scope can be agreed, without a suitable form of contract you can end up in the position where duty of care is an issue especially where a funder requires collateral warranty. This can rear its head when a repair is required to the road and the funder refuses to pay as they contest that it was sub-standard. I have hard of this happening on several occasions.

6. Ransom strips in grid route
Your grid connection follows the verge of a public road before turning sharply and heading across country to the connection point. The works are being undertaken by you and the installation / cable will ultimately be owned by the Distribution Network Operator (DNO). You cannot find the owner of the land between the verge and a land area whose ownership is known. This strip is a ransom strip. To obtain funding, you put in place title indemnity insurance. However, the DNO will not accept this and will ultimately go down the road of a Compulsory Purchase Order. This will slow the project down and these costs will be underwritten in the grid connection offer.

7. Installation of turbines outside of the leased area
This seems remote, but it does happen. When a planning application is submitted, the red line boundary is drawn as pragmatically close to the turbine location as possible. This is because the application fee is contingent on the total area of land being developed. Land ownership maps are also notoriously unclear in terms of the detail on the ground and how it relates to the mapped area. When the construction team are installing the foundations, they may need to move the turbine several meters to avoid poor ground conditions. This is perfectly acceptable and a pragmatic way of managing this situation. However, if the turbine is moved into a neighbouring landowners ownership then you could be prevented from operating the turbine.

8. Believing consultants have an obligation regarding legal reliance
The two principle areas this occurs in are energy yields and ground investigations. If you want the consultant to provide legal reliance, then get in into the contract as part of the original contract negotiation. On a development in Sutherland, a client failed to do this, and it meant he had to get the assessments re-done in order to meet legal reliance. This worked for the consultant as they were effectively paid twice for the same work. However, it was frustrating and costly for the developer.

9. Failure to apply Liquidated Damages (LD) for milestone delays
LD’s are a mechanism whereby you are compensated for any contractor not completing their work on time. However, milestones need to be applied in order to make the LD’s an effective mechanism to protect you in the event of a project falling behind. Take this example from Dumfries & Galloway – the contractor fell behind by one week in getting the site ‘turbine ready’. The commissioning team couldn’t get their work done in this reduced timescale so they claimed damages and costs. However, the LDs in the construction contract ran only from completion – which included backfilling of trenches completed only after the turbines were erected. The developer had no claim for the his costs incurred by the commissioning teams. However, had milestones been included in LD’s, he would have……………

10. Obtaining a Section 19(A) too early
Section 19(A) of the Crofters (Scotland) Act 1993 is a common mechanism for developing wind farms on crofting land. The Land Court grants an order based on the described wind farm and its infrastructure. However, one granted, the order cannot be amended. So, if borrow pits have to move, if access tracks need to be diverted, if turbines need to be relocated, then these changes cannot be approved. So, only submit the Section 19(A) application when you are certain that the development won’t change in any way.

Of course, there are many others hazards waiting to trip you up – but closing these off at the soonest point will ensure a smoother funding and implementation timeline.

By | 2018-04-18T15:41:56+00:00 April 18th, 2018|Uncategorised|0 Comments

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