Sector Focus - Renewables - Scot

Sector Focus: Renewables

Planning for the future Recharging the batteries ... the surge in renewables In addition to covering over 45 separate known risks, we often work on a bespoke basis. We can provide a completely tailored solution to meet your client’s exact requirements, and have an enviable reputation for introducing innovative products to meet ever-changing market needs.

Renewable energy developments often carry significantly different risks to that of standard property developments. We can tailor policies for more complex developer-specific interests, such as equipment relocation and decommissioning, as well as loss of profit and liability for late grid connections.

Leading Title Insurance

Renewables investment Renewables are enjoying a resounding resurgence. There is an excess of energy being produced by wind and solar farms, and as a direct result, a significant number of major battery storage facilities are being constructed. This is excellent news for land developers and agricultural landowners who may be sitting on vacant land, as there is

immediate demand for project developers seeking land for new storage facilities.

The cuts in government solar subsidiaries a few years back led to a reported 56 per cent drop in investment in renewable energy throughout 2017 alone. However, fears that the cuts would kill off the renewables industry have proved to be unfounded.

Renewables investment opportunities

CHINA 1st

USA 2nd

FRANCE 3rd

INDIA 4th

AUSTRALIA 5th

GERMANY 6th

JAPAN 7th

UK 8th

ARGENTINA 9th NETHERLANDS 10th

Whilst there was a resulting plunge in investment, this did not last long - and we have seen a new-found confidence.

The UK is the eighth most attractive destination for investment in renewable energy globally, out of 40 in total on Ernst

& Young’s RECAI for renewables investment and deployment opportunities.

Renewables’ share of electricity generation was a record 33.3 per cent and an increase of 3.9 percentage points on the 29.3 per cent share in 2017.

Renewables’ share of electricity generation - Q4 2018 Share of power generation 25%

1000 HRS

20%

OF ENERGY GENERATED WITHOUT COAL FOR THE FIRST TIME

15%

10%

MAY 2019

5%

0 Wind

Bioenergy

Solar PV

Hydro

Wind power: onshore and offshore

As of 24 June 2019, the Offshore Wind Industry Council (OWIC) has launched a ÂŁ100m, 10-year programme to support the growth of UK businesses looking to capitalise on the huge opportunities offered by the growth in offshore wind around the world.

The new initiative, the Offshore Wind Growth

Partnership (OWGP), is a key part of the Sector Deal between industry and Government, which will see at least 30 gigawatts worth of offshore wind farms installed by 2030, generating a third of the UK’s electricity. It will also see UK content in our offshore wind farms increase to 60% by 2030.

Operational Onshore Turbines

Operational Offshore Turbines

13,073

8,483

(August 2019)

(August 2019

Homes powered by wind turbines

15.5m

26.8m

(August 2019)

(August 2019)

Licensed ultra-low emission vehicles

(Electric) motoring ahead An area of increasing importance is electric vehicles (EV) because the demand for electricity is set to increase substantially in the coming years with the growth of this market. This has recently been recognised by the UK government. In its recent report1 on EVs, the government highlighted that while the high upfront costs of EVs is a significant initial barrier for many consumers – there are also “concerns and perceptions about costs over the lifetime of the vehicle”. This includes the cost of replacement batteries.

The report makes clear that there is a real need for improvements to the charging infrastructure. It says: “Poor provision of charging infrastructure is one of the greatest barriers to growth of the UK EV market. The existing charging network is lacking in size and geographic coverage, with substantial disparities in the provision of public charge points across the country.”

It says vehicle manufacturers are already exploring and piloting second-life applications for batteries with potential solutions including electricity storage for on and off-grid sites (in combination with renewables), to provide commercial gridbalancing services and support vehiclecharging in remote locations.

1

There is a significant commercial opportunity here, particularly in the residential sector with the government’s aim to build 300,000 houses by mid-2020. This means that developers should be planning ahead of the growing EV market and incorporating plans for EV usage at the earliest stage of the project.

https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/383/383.pdf

UK Government statistics report the number of all ultra-low emission vehicles licensed in the United Kingdom between the first quarter of 2010 and the fourth quarter of 2018 steadily increased, reaching 200,295 vehicles by the fourth quarter of 2018.

These vehicles include cars, microcars, motorcycles, vans, heavy goods vehicles and buses and coaches.

In the third quarter of 2018 there were 376 ultra-low emission buses and coaches sold, nearly one hundred more than in the same quarter one the previous year.

This time period also saw an additional 1,395 ultra-low emission motorcycles being registered, though numbers had been fluctuating over the past years.

Vehicle Licensing Statistics 2010-2019 Licensed ultra-low emission vehicles (ULEVs)

CARS 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2010

2011

2012

2013

2014

2015

2016

2017

2018

2016

2017

2018

MOTORCYCLES 7,000 6,000 5,000 4,000 3,000 2,000 1000 0 2010

2011

2012

2013

2014

2015

LIGHT GOODS 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2010

2011

2012

2013

2014

2015

2016

2017

2018

2016

2017

2018

2016

2017

2018

HEAVY GOODS 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2010

2011

2012

2013

2014

2015

BUSES & COACHES 1,600 1,400 1,200 1,000 800 600 400 0 2010

2011

2012

2013

2014

2015

Infrastructure: charging stations

UK Public Charging Connectors & Locations

25,000 20,000 15,000 10,000 5,000 0

Aug 18

Sep 18

Oct 18

Nov 18

Dec 18

Charging Points

Jan 19

Feb 19

Mar 19

Apr 19

Charging Locations

May 19

Jun 19

Jul 19

PUBLIC CHARGING STATIONS

DEVICES

NEW EVs 2013

14,160

1.4%

CONNECTORS

USED LAST 30 DAYS

NEW EVs 2018

24,360

487

6.0%

8,981

as of 9 July 2019

Battery storage capacity

The past few months have seen particularly significant growth in renewables with battery storage projects powering up across the country. Recently, the go-ahead has been given for a giant ‘super battery’ with a 50MW energy capacity and half the size of a football pitch, to be built on vacant land on the largest wind farm site in the UK (in East Renfrewshire). It will reportedly be capable of achieving full charge in less than an hour and will be on standby to provide power to the National Grid. At the other end of the country in Taunton, Somerset, a new £9.84 million battery storage facility has just been completed which will allow the local council to store power and supply the National Grid at peak times.

In megawatt-hours, battery energy storage capacities installed in the UK by the end of 2022 will be 50 times what they were as 2017 ended. Over 9,000MWh of battery energy storage could be deployed in Britain by 2022 as the sector enjoys a trend towards

‘explosive growth’, a market analyst has said.

Forecasted installations are set to rise more than 200% year-on-year.

Furthermore, the Solar Trade Association estimates that planning permission applications for energy storage projects have quadrupled since 2016 and, according to RenewableUK, planning applications to install just 2MW of battery storage capacity in 2012 have since soared to a cumulative total of 6,874MW in 2018. Renewables UK also says 92 per cent of these applications are approved first time around.

There are various factors driving this resurgence: falling prices in engineering equipment, wind farms are investing in more efficient generators, there is a cheaper initial outlay for developers, lenders are more comfortable with the associated risks and – crucially – there is greater demand with the National Grid (i.e. the end user) being a key beneficiary.

Battery Storage Applications MW Capacity 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

2012

2013

2014

2015

2016

2017

2018

Potential growth in UK cumulative battery storage capacity by end 2022 MWh capacity 50

40

30

20

10

0

2018

2019

2020

2021

2022

Eyesore or opportunity?

Such commercial sites understandably attract polarising views. Whether they are viewed as a monstrous scar on the landscape or a vital development for the reduction of carbon emission, the fact is, there is an increasing reliance on renewable energy. What’s more, 100 per cent renewables require a lot of storage capacity and, as demand increases, so will the need for storage facilities – and for suitable land for it.

For project developers, the renewables market offers significant opportunities to make solid returns on their investments but are landowners seizing the business opportunities this represents? Many agricultural landowners are already

recognising and embracing the opportunity to diversify their business offerings to increase their profits while playing a vital part in the global drive towards renewable and sustainable energy.

Leasing land for an energy storage facility presents a lucrative opportunity for agricultural landowners to earn a guaranteed income throughout the term of the lease.

Depending on location, commentators suggest a potential rental income of £750 to £1000 per acre. There’s also the enhanced value of the land post-completion of the facility, for instance, the operational Taunton site is now worth significantly more than it actually cost to set up the facility, according to a recent valuation.

To go down this route will mean expanding and diversifying farming or agricultural business or selling / leasing vacant land to project developers. Importantly, there is resounding demand for suitable land, with a number of large-scale independent battery storage developers actively looking for land of at least half an acre to lease for battery storage projects (there are well over 300 UK-based businesses operating in this new sector).

What’s to consider?

With the potentially significant rewards, how can farmers and landowners decide whether letting land to developers for battery storage projects make commercial sense for them?

The key initial point to make is that not all vacant land will be suitable for energy storage facilities. Project developers ideally need flat land on which to build; and the site needs to be suitable for the developer’s needs.

Consideration should be given to committing to a commercial relationship for the long haul if the project developer wants a commitment of, for example, 30 years or more. And what about the local community? Will the locals welcome the construction of a highly visible storage facility or could could this become a blot on the landscape?

Landowners who decide to go ahead should take expert advice from commercial solicitors experienced in energy and renewables.

They will need to ensure their lease terms are effective and provide commercially robust advice on issues such as exclusivity agreements and site decommissioning, post-completion site clean-up, tax issues and so on.

Opportunities for developers

Paris Agreement ‘The UK is committed to reducing carbon emissions by 80% against a 1990 baseline by 2050’

Expected Growth in Green Construction in Europe by Sector 2018 to 2021 60%

50%

48%

40%

38%

32%

30%

20%

10%

0% New Commercial Construction

Existing Buildings / Retrofits

Low-rise Residential

What’s next?

There is undeniably a renaissance in renewables with a clear demand for more storage facilities, but is the government taking any new action to facilitate this growth sector? Early this year, it launched a consultation to consider how planning policy frameworks can be altered to support developers and businesses seeking to build energy storage facilities in England.

At the time of writing, big projects have

UK

13TH IN THE WORLD FOR ECO-BUILDING

to pass through the Nationally Significant Infrastructure Projects (NSIP) regime, while smaller projects go through local planning frameworks.

The proposals include removing the 50MW cap so that all storage projects can be sent to local authorities for planning committee approval. The government’s response to the consultation is still awaited but the sector will be watching with interest to see what the future holds.

‘GREEN’ ECO-BUILDING TO RISE TO

UK ECO-HOMES TO RISE

40%

60%

BY 2021

BY 2021

Levels of Green Building Activity UK 2018 and 2021 expected 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2018

2021

1% to 15% green projects

More than 60% green projects

Exploring (no green involvement)

31% to 60% green projects 16% to 30% green projects

Liana Di Ciacca Head of Scotland / NI Underwriting LDiCiacca@firsttitle.co.uk +44 (0)141 413 8803

Nicola McCluskie Senior Underwriter Scotland / NI Underwriting NMcCluskie@firsttitle.co.uk +44 (0)141 413 8803

Call: +44 (0)141 413 8800 Email: scotinfo@firsttitle.co.uk Visit: www.firsttitle.co.uk

Simon Hewitt UK Head of Sales & Marketing shewitt@firsttitle.co.uk +44 (0)207 160 8556

Martin Wilks Head of UK Underwriting mwilks@firsttitle.co.uk +44 (0)207 160 8604

Call: +44 (0)207 160 8666 Email: comm.team@firsttitle.co.uk Visit: www.firsttitle.co.uk

The statistics and graphs contained within this document have been obtained from sources believed to be reliable.

It is the intention of this document to collate numerous sources of data relevant to the area, and by doing so, provide a comprehensive - and we hope - informative focus on the sector.

Should you have any comments, queries or feedback, please contact us at marketing@firsttitle.co.uk

First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603.

Registered office: First Title Insurance plc, ECA Court, 24-26 South Park, Sevenoaks, Kent TN13 1DU. 1348-0919