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Large-scale solar once again an option for rural estates

Industry professionals suggest developing large-scale solar parks is, once again, becoming a viable option. Particularly for rural estates looking to invest.

Although the government effectively killed off the large-scale solar industry when it closed the Feed-In Tariff and Renewable Obligation to new schemes in 2016, the cost of the technology has since dropped so much that it’s worth thinking again, says Hugh Taylor, chief executive at independent power and energy consultancy Roadnight Taylor.

“The cost of solar installations has declined by a third since 2016, while at the same time revenues from wholesale electricity have increased by more than 80%. With the technology now proven and reliable, we are entering a period when subsidy-free, utility-scale solar is viable once more.”

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A growing number of large corporate organisations are seeking to buy their green energy direct from owners of big renewables plants, so there are opportunities for landowners to meet these needs, he adds. 

“While there are some big installations programmed for 2019/2020, many proposed schemes are not yet feasible for traditional solar investors – but given the cost of land rents and the premiums developers charge to investment funds, those with their own land are well-placed to capitalise on the rising clean energy demand.

“By securing borrowing against land, it’s possible to get low rates of interest, and if you pay for the grid connection and planning application yourself, then there is no need to pay a premium to a developer,” says Mr Taylor.

“It makes the whole project considerably cheaper, and returns of 5-7% are feasible at the moment. Rather than going straight into a lease with a developer, some of our clients are investing further into the project, from grid and planning costs to potentially owning or co-owning the whole scheme.”

Tax benefits

Andrew Vickery, head of rural at Old Mill, adds that there are tax benefits to be had by investing your own money. “From an Inheritance Tax (IHT) perspective trading activity is preferable to rental, as the estate is more likely to qualify for Business Property Relief (BPR).”

Generating your own electricity counts as a trading activity, while simply leasing a site to an operator counts as rental. In addition, if the estate uses a lot of the electricity in-house, that further improves the chance of the project being classed as trading activity.

In what is known as the Balfour matrix, if an estate generates more than 51% from trading activities it qualifies for BPR, offering 100% relief from IHT. The Balfour matrix considers five tests relating to trading versus rental activities: Turnover, profit, asset values, time spent and overall context.

Where landowners have partially invested in a scheme but still lease the site at the end, it will be a more valuable lease but will still count as rental activity, explains Mr Vickery.

“However, there could be hybrid options depending on how you structure the agreement. It’s about risk versus reward – if you base the lease on profit share or turnover that carries higher risk, so would count as trading and yield the associated benefits for IHT and other taxes.”

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