Keeping a weather eye on wind farms
11 May 2010
The UK is legally bound to deliver a reduction in greenhouse gas emissions of 80% by 2050 and at least 34% by 2020, compared with 1990 levels. As part of these ambitions, which are enshrined in the Climate Change Act 2008, we also have an obligation to hit an EU target of generating 15% of our energy from renewable sources by 2020.
The major political parties are at idem on these commitments. Even in their fevered hunt for votes, there's little of any substance separating their respective pre-election promises in this regard.
For 'renewable sources' read solar, wave and wind power. According to Renewable UK - the trade and professional body for the UK wind and marine renewables industries - wind has been the world's fastest growing energy source of recent years. Currently in the UK there are 257* operational wind farms (Whitelee wind farm near Eagelsham in Scotland is presently the largest in Europe); 26* under construction; 199* consented wind farm projects; and 268* in planning.
The political and legal commitment to delivering renewables (and especially wind power) has already been translated into planning policy. In Scotland, for example, the Scottish Planning Policy published in February this year, sets out a clear directive to local planning authorities. It states: 'Planning authorities should support the development of wind farms in locations where the technology can operate efficiently and environmental and cumulative impacts can be satisfactorily addressed.' In England, the newly appointed Infrastructure Planning Commission, which is an independent body that decides applications for nationally significant infrastructure projects including large scale wind farms, began receiving applications on 1st March 2010. It is hoped the Commission's applications process, which involves front-loading of public consultations, will result in a more streamlined and efficient approach to determining planning applications for these projects.
While the number of planning applications for wind farms continues to rise, so too does the volume of responses and objections. This situation has driven a noticeable increase in the creation of specialist renewables teams within law firms.
Risk management
Solicitors acting for wind farm developers and investors in these projects must offer the full spectrum of risk management advice. And title risks constitute a significant proportion of the overall project risk. An increasingly common method for mitigating these risks is to invest in appropriate legal indemnity insurance. Good title insurance has the added benefits of speeding up a deal and maximising eventual productivity by enabling the installation of turbines in optimal locations that may be affected by title defects.
There are broadly four categories of title risks pertinent to developers of wind farms. Firstly (and by far the most commonly encountered category of title risk) is lack of easements which are often required to create access and servicing roads; and for the installation of grid connection infrastructure. Secondly, there may be no paper title to a specific area of land required for the location of turbines or, due to changing land topography and boundary features particularly in rural areas, there may be uncertainty as to the current location of legal boundaries described in archaic deeds. Thirdly, titles to rural properties are often burdened by a plethora of manorial rights and exceptions and reservations which benefit unknown parties and are not being exercised but which could create a potential ransom situation if the turbines or infrastructure prejudice the future exercise of these rights. Finally, the site may be burdened by restrictive covenants, which limit use of the land to specific purposes. Restrictive covenant risks are more frequently encountered in single turbine projects undertaken to create energy efficiencies for industrial or commercial ventures located in semi-rural or developed areas.
Controlling costs and protecting income
Although these risks are not specific to wind farm sites, it is essential that a title insurance policy which covers risks associated with these projects accurately captures the exposure of the project operator. With investment costs for a 3.0 MW wind turbine ranging anywhere from £1.5m to £2m, it is not surprising that project developers and their investors would prefer to off-load or transfer their title risks entirely rather than simply seek to minimise them.
A policy must therefore cover not only the value of the turbines but also the idiosyncratic losses of grid connection costs, electrical installations and structural costs associated with renewables projects. Since the average project life is 20 to 25 years, the policy must also adequately cover the exposure for the duration of the life of the turbine and must consider contingent losses arising from premature decommissioning of the turbines as a result of the challenge.
As the project developer's interest is typically a leasehold interest, care must be taken to ensure that the lessor has the requisite locus to grant the lease and if not that any potential risks are covered off by the policy. Even before the project gets off the ground, developers may face the possibility of judicial review actions, which could result in the project being shelved. Obtaining judicial review cover from a title insurer means that the developer can focus its efforts on project assembly whilst the title insurer defends the judicial review challenge on its behalf.
Looking ahead
In the coming years, this relatively new area of law will become increasingly sophisticated and is likely to increase in complexity as technology and designs are enhanced. Title insurance will be an important mechanism for overcoming many of the initial obstacles faced by project developers and it will undoubtedly assist solicitors in this increasingly competitive legal market, to deliver the best possible risk management advice to their clients.