UK: Wind Farms - Renewable Energy And Property Law

Last Updated: 18 December 2012
Article by Jane Reyersbach

As the windiest place in Europe, the UK has the potential to lead the way on the deployment of wind power. Indeed the UK is the world leader in offshore wind electricity generation, with as much capacity already installed as the rest of the world put together. However, there is still a long way to go to meet the Government's targets of producing 33 GW of electricity from wind energy by 2020.

Financial support for wind projects is provided under the Renewables Obligation in the form of Renewable Obligation Certificates (ROCs). Offshore projects sell the electricity they generate and, in addition, receive 2 ROCs per 1 MWh generated. Onshore wind projects currently receive 1 ROC per MWh generated. The average value of a ROC is currently around £40. The number of ROCs issued per MWh generated are set to reduce over the next few years to reflect the falling costs of deployment and also as a result of government budget cuts.

Offshore Wind

An offshore wind farm may be constructed in one of three possible locations:

  • in the internal waters of the UK;
  • in the territorial sea of the UK (up to 12 miles offshore); or
  • adjacent to the territorial sea.

Each location has significance in property law terms as, dependent upon the location of the wind farm, the developer will be granted a different form of lease governing the terms of their occupation.

Internal waters comprise those areas of tidal water that lie on the landward side of any base line. A baseline is generally the low water mark around the coast of the UK and most land lying within this area is vested in the Crown. There are however areas of internal waters that may be privately owned.

The territorial sea comprises the waters between the baseline and the 12 mile offshore limit established by the Territorial Sea Act 1987. The United Nations Convention on the Law of the Sea (UNCLOS) provides that a coastal state has sovereignty over its territorial sea including the sea bed which in the UK means that it is owned by the Crown.

Within the EEZ the coastal state has sovereign rights for the purposes of exploring and exploiting the natural resources of the waters adjacent to the seabed and of the seabed itself. The rights given to the coastal state in this area do not amount to ownership in the strict legal sense.

Practical Implications

As the Crown has ownership of the territorial sea it may grant a standard lease to any potential wind farm developer or cable owner. However, where a developer wishes to construct a wind farm either wholly or partly within an EEZ, the Crown is only able to grant a "lease of rights" in relation to the area outside of the territorial sea. The case of Bruton v London and Quadrant Housing Trust characteristic of a lease that it should create an estate in land. If the requirements of a lease are met, namely that there should be a grant of property with exclusive possession for a fixed or renewable period, then there is a lease, even if the grantor had no estate in land.

The fact that the Crown merely has sovereign rights over, and not ownership of, the EEZ means that the security that an intending lessee can offer to any lender is not as strong as it would be if the wind farm was located within the territorial sea. So far lenders appear to have accepted a lease of rights as a valid form of security. However, as wind projects increase in size and complexity as a result of increased water depth and distances from onshore substations, a greater number of projects are now looking for large levels of third party financing. Previously, many of the large energy companies had funded their projects on balance sheet without the need for external finance. In the future, the issue of funding and security for any lending may become more heavily scrutinised.

Transmission Assets

There is a new regulatory regime governing offshore transmission networks. These are the cables running from the offshore wind farm to the onshore electricity substation connecting to the UK electricity grid. EU competition law requires that separate legal entities hold the generating assets (wind turbines) and the transmission assets (cables). A specific licence granted by the regulator OFGEM will be required for each operation and the cable owner will also need to enter into a separate licence with the Crown Estate.

Onshore Wind Farms

In property terms onshore wind farms may appear to create fewer issues than those offshore. Once a site is located, the developer will either need to purchase it, or obtain a long lease of a site, and arrange connection for the turbines to the UK electricity grid. However, development of these projects has not been as straightforward as many initially predicted.

Problems encountered with onshore wind farms relate to noise nuisance, interference with mineral rights, agricultural tenancies and issues with easements for the cables.

The creation of noise by a wind turbine may constitute an actionable nuisance, and there have been several cases brought by affected parties complaining about noise produced by wind turbines. So far there has not been a case which can be said to have set a precedent in this area. The issue of noise nuisance therefore remains distinctly uncertain but potentially costly for a developer.

The construction of an onshore wind farm may interfere with mineral rights, which in certain circumstances can be owned by someone other than the land owner. When it arises the issue is usually one where the alleged owner of the minerals makes a ransom demand. However, it is often too difficult to discover conclusively that such mineral rights exist. Mineral rights may have a variety of origins, the most obvious being where they have arisen under express grant or reservation contained in a conveyance. They may also have arisen under a Local Act of Parliament, or they may have manorial origin. It will therefore be necessary for a developer to undertake careful checks on the position as to mineral rights before commencing development.

As of 13 October 2013, the status of mineral rights is set to change. From this date it will become more difficult for somebody to claim ownership of these potentially valuable subsurface assets unless their interest has been registered with the Land Registry before this date – something which could serve to assist with wind farm development.

Agricultural tenancies often prove to be a problem for wind farm developers, as many wind farms are located in rural areas. Before a wind farm lease can be granted or easements granted for the cables, it may be a condition of the option agreement that the landowner provide vacant possession of the land. It will therefore be necessary to terminate any agricultural tenancies, which will require the agreement (often at a significant price) of the tenant. Where a tenancy is a farm business tenancy under the Agricultural Tenancies Act 1995, a conditional contract whereby the tenant agrees to surrender the tenancy to the landlord when the developer obtains planning permission is valid and enforceable. However, problems arise where the tenancy is an agricultural holding under the Agricultural Holdings Act 1986. This legislation contains very strong provisions to protect the security of tenure of an agricultural tenant. Provisions contained within an agreement to surrender a tenancy under this legislation have been held to be void on the grounds of public policy. Much greater care should therefore be taken when dealing with these types of tenancies.

Conclusion

Whilst the government actively supports the development of wind projects they do present challenging problems. What differentiates them from other types of projects is the speed at which issues around their site and assembly can develop and evolve. Both offshore and onshore projects are attracting new and different types of investors and face more challenging financial scrutiny as the regulatory environment changes. It will therefore become essential for any developer to obtain comprehensive up to date advice and ensure sufficient time and resource is allocated to the property considerations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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