ENVITEC BIOGAS AG Developers and investors getting to grips with biogas technology and Government support mechanisms often lose sight of the fundamentals of purchasing land for development, and how the site characteristics can be the difference between success and failure when it comes to maximising the capital and income potential of a renewable energy scheme.
Title - As Valuers we depend on borrowers to know accurately what they are buying and from whom. Valuations at an early stage identify the viability of a scheme, but with a recent Midlands based food waste project it was only in the final legal stages when the solicitor's Disclosures against the Certificate of Title showed the land was owned by two companies that the viability of the whole project was called into question.
Site Area - the extent of the site can be key to implementing and operating a scheme in line with the planning permission and conditions. Sites bordered by rivers, railway lines and business premises for example can limit the scale or design of a scheme.
Access - Direct access to a Council maintained road is important. Often we see sites on industrial estates or business parks where the estate roads are privately owned. Invariably the rights of individual users are poorly documented, if at all, and the responsibility for repairs and maintenance are vague or undefined.
Bringing waste and large tonnage of energy crops into a site can impose a heavy burden on road surfaces opening up a developer to high maintenance costs based on usage, and sometimes it raises questions of whether a developer even has rights to maintain a road if it is held in separate ownership. Often the scheme necessitates a significant increase in vehicle movements at antisocial times of the day, and as if that is not enough where rights of access exist for agricultural or business use those rights may not extend to renewable energy schemes.
Mines and minerals - a reservation of mineral rights can prevent foundation works for new structures, and building near boundaries, particularly those close to Network Rail or Environment Agency property for example, can also be problematic, leading to sterilised areas where neighbours or utilities reserve access rights.
Feedstock Supply - feedstock supply & digestate offtake agreements are critical to the operational feasibility and flexibility of a scheme and written agreements are essential even where the owner/ operator and the feedstock supplier are linked through family or business. In establishing a market value for the site we are assuming a sale to a third party at arms-length, and the hypothetical buyer would look for a formal feedstock agreement rather than taking supplies on trust.
Connected Parties - where sites are sold between companies or partnerships care should be taken to avoid transactions at undervalue leading to tax consequences for connected parties and purchasers.
Easements and Covenants - grid connections coming over third party land require formal access rights and easements negotiated in advance can be cost effectively secured, but if left to the end of a development project often turn into a ransom payment. Sometimes annual payments financed out of cash flow can be more affordable than up-front lump sums.
Previous land owners may hold the key to restrictive covenants which otherwise can delay or prevent development. Where those covenants date back many years renewable energy may not have been envisaged in those days, and releasing restrictions on land use or agreeing overage payments may need time to resolve particularly where the date or the basis of valuing the uplift are not clearly defined.
Many of these hurdles can typically be foreseen and overcome at relatively small cost through a proper Due Diligence process which although a rather dry and arid affair can reap fruit in the longer term. Invariably in fine tuning schemes in this way the rewards outweigh the costs.
Anthony Mayel, Fisher German
August 2015
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