The renewable energy industry is facing what is arguably its biggest challenge yet, with current grid capacity constraints causing significant delays for developers looking to secure connection dates. Currently over 40% of grid connection dates being offered to developers of energy projects are for 2030 or beyond, and this 10 to 15 year wait is creating a shift in the approach to negotiations with landowners.
In the not too distant past it has been usual for option periods to be 2 or 3 years, maybe with a long stop of 5 years, as developers could be confident that planning consent and the grid connection would be issued within this period. As grid connection dates are pushed further into the future it is becoming necessary for developers to seek option periods of 10 years or more, and/or include multiple and flexible options for the option period to be extended in the event that grid connection is not secured within the initial agreed period.
This is affecting the expectations of landowners and their agents regarding option payments. With a decreasing amount of viable sites for development available, negotiations around higher initial option fees, or a greater number of payments during the longer option period, are to be expected in the current climate.
The rate of inflation the country has experienced over the last year has also brought indexation into focus and it is now common for landowners to request that all payments during the option period are index-linked. Where the base for any increase is the date of the option or, where further negotiated by the landowner the date of agreed heads of terms, costs can mount quickly during a longer option period. Additional payments where the initial option period is extended or an option agreement varied to accommodate a delayed grid connection date are also adding to project costs bills.
Something else to consider in the light of grid connection delays is the need to preserve the planning consent for the project. Often it is proving necessary to provide for works to be undertaken during the option period to implement the planning consent whilst grid connection is awaited, to prevent lapse of the planning consent creating another obstacle for the project. If consent to carry out such works is not given by the option agreement, further negotiation with the landowner is likely to be required, adding further delay and complication to the process. We are, however, separately aware of implementation periods of planning consents being successfully extended, with a number of consents that we know of being given 5-7 years for implementation.
For the moment the effects of grid connection dates 10 or more years into the future will have to be accommodated in option agreements and other land arrangements. However, there is hope as National Grid ESO is alive to the issue and promoting its 5-point plan to accelerate connections. A number of developers have already received revised grid dates with shortened connection timescales.
The aim of the plan includes:
It feels like we are coming up from the worst of the connection dates fiasco. Hopefully the 5-point plan and any ongoing reviews undertaken by National Grid ESO will pave the way for speedier grid connection dates so that we can quickly return to the efficient deployment of much needed renewable energy development.
For further information, please contact the real estate and energy & resource management teams.
