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Structuring your renewable energy project
- AuthorJohn Roper
Given the availability of suitable land within the east Midlands and Notts region for renewable energy projects, along with the European Commission’s recent statement to Britain that the current level of state support for renewable energy sources must be phased out by the end of the decade, now would seem to be an opportune time to explore options for your land.
So, if you’re thinking of investing in a wind turbine, a solar farm, an anaerobic digester or biomass boiler what about the risks of such a project? Getting your renewable scheme into the right corporate structure should be one of your first considerations and a good start, both from an investment point of view as well as allocating risk. In practise, this means choosing between incorporating a limited liability company (the most common structure for renewables joint ventures), opting for a partnership, or simply entering into a purely contractual arrangement with a supplier.
A joint venture arrangement between a landowner and solar panel supplier might be the preferred option if you want to share not only the risks but also the profits with another party. Another arrangement might be a simple direct purchase from a supplier where you would assume all the investment risks but equally receive all of the profits.
Irrespective of which corporate structure you choose, you’ll be presented with a raft of legal documentation that you’ll be expected to sign up to, this may include joint venture, bank finance, supply and maintenance agreements. Before entering into these documents, it is important to read through them with the eye of an eagle so that you fully understand the implications, for example, of the sun not shining enough for your solar panels to achieve projected returns, or of your large rotating wind-driven ‘garden ornament’ generating noise that results in complaints.
Most, if not all, supply contracts will contain warranties, which you should be able to rely on. For example, some wind turbine supply contracts will warrant that your turbine will not exceed certain noise levels; others will not. Some solar panel suppliers will warrant that your panels will perform in accordance with predicted solar radiation estimated by them at your location, and may even be prepared to refund the difference where performance is not achieved.
Do be aware, however, that warranties could be limited to a duration significantly less than the predicted life of your scheme, which may be 20-25 years. In particular, look out for warranties given in relation to the ‘inverter’ which is the device that takes the direct current produced by a renewable energy generator and converts it into a form suitable for use in the home/business or export to the national grid, as these components are often only warranted for ten years.
Whichever corporate vehicle you choose will influence your level of risk and given that there could be tax implications you should speak to a knowledgeable accountant at the earliest opportunity. Read the small print of any contracts presented to you and if in any doubt seek legal advice from a renewable energy specialist lawyer. In doing so, not only will you be contributing to reducing CO2 emissions but you will be able to ‘breathe a little easier’ knowing you have protected your assets and minimised your risks as best you can.