Interview by Rikki Stancich

Land rental values for large-scale wind farms have increased dramatically in Scotland since 2002, according to a report by UK property consultancy, CKD Galbraith.

The report found that between 2002 and 2008, rents under new leases increased on average by 200%. In addition, from 2009 to 2010, rents rose by more than 10%. Early indications in 2011 suggest a continuing upward trajectory for land lease values as demand for wind farm sites increases. 

Landlords of pioneering wind farm sites throughout Scotland will soon be undertaking rent reviews on the earliest leases, suggesting that wind farm owners and operators can expect to pay significantly higher land rents in coming years.

Wind Energy Update speaks to Mike Reid, who heads up CKD Galbraith’s utilities department, to learn more about how commercial wind farm operators will be affected.

Wind Energy Update: CKD Galbraith's study reveals that the rental value of wind farms has increased on average by 200% since 2002. What has created this upward pressure on land rentals?

Mike Reid: The demand for larger-scale commercial wind farm sites is bigger than the current supply of land. Most of the good sites have been taken up and there are areas of local opposition including owners who don’t want their land used for wind farms. Also more mid-range developers have entered the market looking to develop sites, which is increasing the global demand and pushing up prices.

Wind Energy Update: Is the increase in wind farm site rental value in step with the national average value of land rentals?

Mike Reid: It is outstripping other rental streams at present.

Wind Energy Update: Is the increase in rental prices likely to have a significant impact on the bottom line of onshore commercial wind farms? 

Mike Reid: Existing projects won’t be affected, given that rent figures are usually agreed at the beginning of the planning and consent process. Most agreements don’t give the owner the chance to review the rents to an open market level but have annual increases to the RPI and stepped rental uplifts from year 10 onwards. Owners that have agreed terms are often locked into 25-year lease agreements.

Even though these landowners may missing out on potentially higher rents, the current earnings from the land lease, compared to other land uses (such as sheep farming), is still higher.

Wind farm projects in the pipeline will, however be affected by higher rents. It shouldn’t have a significant impact, with increasing technological efficiencies helping to counterbalance the cost, but it will need to be factored into the developer’s financing model.

Wind Energy Update: The UK's feed-in tariff (FiT) budget is likely to be cut by 10% in 2014-15. Is the UK's small-mid scale wind sector robust enough to absorb this cut in subsidies?

Mike Reid: We would need to see the results of the review before making any assumptions, however, the small-to- medium sized market should still be efficient. If not, it would defeat the purpose of the FiT.

In the UK, the FiT begins from the date the project is commissioned. Therefore, if a developer starts the planning process now, it could receive a different FiT rate from that which is in place today. This creates a lot of uncertainty for both developers and farmers – ultimately, they are kicking a ball toward a goal that is likely to move.

Wind Energy Update: UK government spending cuts are likely to impact on the planning process. How much longer is the planning consent process likely to take after the spending cuts?

Mike Reid: Councils are making budget cuts and if you reduce the resource, [the councils] will be even more stretched to deal with the planning applications. The length of the process depends on the scale of the project and on where the project is located. Smaller project applications tend to be processed more quickly than larger project applications.

To respond to this article, please write to the editor: Rikki Stancich

 Image credit: Whitlee wind farm, image courtesy of Scottish Power Renewables.