Your connection offer has changed - Do your land rights still work?

The obvious starting point is the option period. An option negotiated several years ago may have assumed a materially earlier connection date. If that date has moved, there may not be sufficient time to obtain planning, satisfy conditions, finalise financing, undertake pre-construction activity and draw down the lease (particularly where there is an agricultural tenant in play or an obligation to work with the landowner to mitigate the impact on cropping).

If the connection is delayed beyond the period for implementing the planning permission, does the option permit the developer to undertake sufficient works to lawfully implement the consent before exercising the lease which prevents the consent from lapsing? An option can sometimes give the developer appropriate rights of entry and rights to carry out the minimum works required for this purpose. If these rights are missing from the option, a developer might consider approaching the landowner to vary the option to allow for this, to avoid the need to exercise the lease significantly earlier than commercially desirable, or to grant separate rights to enable the developer to do so.

When a landowner knows that planning and grid have been secured and the option is no longer speculative, the parties’ interests become more closely aligned and they can often find themselves working together to ensure that the project can be brought online, to the mutual benefit of landowner and developer. Some landowners may run the risk of adverse tax consequences in permitting such works on their sites before the lease is granted so it is worth making such requests early to enable sufficient time to obtain all necessary professional advice.

By way of example, if the option contemplated a 40-year project life and the connection works programme has moved by five years, an earlier-than-ideal exercise coupled with delayed energisation can consume years of what was intended to be the project’s operating life.

Check whether the drafting of the option and lease provides sufficient flexibility around:

• Term commencement

• Commissioning/energisation

• Construction periods

• Extensions

• Repowering and

• Decommissioning

Some solar options may well already permit co-located battery storage, although many will be strict on the technologies that can be installed and how they can be used (i.e. batteries may be permitted as part of a solar farm but may be limited to load shifting only). Developers should nevertheless check older agreements carefully, particularly where the permitted use or definition of the project is technology-specific. Recent proposed changes to the TM04+ connection methodologies look to prioritise co-located projects ahead of standalone projects in the next grid connection application window – it may be worth revisiting the existing option against this new background to assess whether it accommodates co-location, or if a variation is required.

Options (and project leases) often contain longstops or termination rights tied to:

• Planning submission

• Planning consent

• Commencement of development/construction/commercial operations

• Financing or

• Exercise

A grid timetable that has moved substantially could make historic dates unrealistic. Developers should therefore check whether delay attributable to the network/connections process automatically extends relevant periods or whether an extension requires landowner consent, notification, or payment of an extension fee.

A revised connection offer should prompt a check of the contracted project layout. Does the cable route still work, and can it be varied? Is the substation in the anticipated location? Are access rights sufficient? Can rights be granted to the DNO/IDNO or other relevant network party? Are new areas required for BNG (or other ecological mitigation) that were not contemplated by, or provided for, in the original documents? Older option agreements increasingly need to be revisited, plans varied, and drafting updated to account for changes to any or all of the above.

If delay forces early exercise, when do rental payments start? The documents may distinguish between option fees, construction rent, base rent and turnover/MW-linked operational rent. A changed programme can put pressure on previously assumed economics. Stepped option or rental payments, or a one-off option extension payment, in return for longer development periods, may provide a sensible commercial solution.

Finally, revised projects should be checked against assignment, charging and funder provisions.

A project with an accepted Gate 2 offer has a confirmed (albeit estimated) connection date, connection point and queue position, subject to the applicable regime. This makes the project considerably more tangible as a development asset.

Before a financing or disposal process begins, developers should confirm that their property documents permit the most commonly seen financing structures and contain appropriate and market standard funder protections. We are increasingly seeing projects stall at financing or disposal stage because these aspects were overlooked or conceded under pressure at option stage (often to meet Gate 2 application timescales), with a view to circling back to fix them later with the landowner once the project has been de-risked. Some of these fixes have not been implemented in some of the projects coming to market and we are seeing an increasing number of projects which are not bankable in their current form. Developers should undertake bankability reviews now and ensure that their projects are ready to bring to market once they accept their Gate 2 offers.