Many businesses are nowadays looking for ways to both reduce their exposure to volatile energy prices and to reduce their carbon footprint. For many industrial and commercial energy consumers in possession of real estate assets located away from residential properties which have relatively easy access to the local electricity distribution system, developing onsite wind generation to provide electricity plus income from tradeable ‘green certificates’ is becoming an increasingly attractive option. If managed correctly, such developments may also have a positive effect on a business’s green credentials.
Recent examples of such projects include:
- McCain Foods investing £10 million to build three wind turbines at the UK’s largest chip factory, thereby helping to cut its energy bills at the site by up to 60%. Corporate Affairs Director Bill Bartlett said “This demonstrates that a large-scale manufacturing plant can operate efficiently while significantly reducing its carbon footprint” (The Independent 15 August 2007).
- Tesco submitting plans to erect a ten-meter high wind turbine to power the check-outs at its biggest Edinburgh store. Tesco commented “This is part of a UK-wide initiative that we are committed to, We need to try to provide renewable energy at as many of our stores as possible” (Edinburgh Evening News 15 August 2007).
- The Eastman Chemical Company installing two 2MW turbines on their site near Workington which became operational in late 2006.
- Ford, ASDA/Walmart, Marks and Spencer and other intensive energy users are progressing plans for renewable energy projects.
Hammonds’ Energy & Utilities Group has been advising developers, banks, contractors and utilities on all aspects of wind farm projects from the earliest days of wind power development in the UK and to date has advised on a significant proportion of the UK’s currently operational onshore wind capacity. Our capability and experience in wind sector is therefore extensive and our Energy & Utilities lawyers are experienced in all the key disciplines.
Key issues involved in an onsite wind farm development will include:
- Project evaluation and building the business case including assessing the land and wind resource.
- Development, including the planning and environmental consents process (which may be complicated and long drawn out) and arranging an appropriate grid connection with the local electricity distribution company. The developer may find that an experienced wind farm adviser can help progress the commercial issues involved.
- Financing, which may be either:
- on balance sheet i.e., the company finances the project itself with or without the use of third party debt financing – the advantage being maximisation of financial return from the project, but set against this will be the requirement to assume all the commercial risk: or
- via a project-financed joint venture eg, sharing the upside and construction and operating risk and selling the project for a development profit.
Tax considerations will be key in determining which option to follow and could enhance the financial return on a project through the use of available capital allowances and other appropriate tax structuring.
- Procurement, construction and operation. Depending on the terms and conditions of the main procurement and construction agreements the developer will need to ensure that it has in place robust agreements for construction and operation of the wind farm including service contracts, warranties, sub-contracts, and operation and maintenance agreements. Import/export arrangements with a licensed supplier may also be required.
- The regulatory framework may impact the structuring of onsite wind generation projects. For example, although a “sale and buy-back” arrangement between a generator and a licensed electricity supplier in respect of electricity consumed on-site by that generator is no longer required under the Renewables Obligation (pursuant to which renewable generators may earn green certificates on a per megawatt basis), supplies made by the same generator to third party on-site customers, to be eligible for green certificates, must still be made via a licensed supplier.