The below article appeared in Energy North on Monday 29th February 2016.
The rapid deployment of onshore wind turbines in Scotland over the past decade has focused attention on the economic benefits to local economies and particularly to landowners.
However, the combined impact of the removal of subsidies from large-scale wind developments (which is being seen widely as a no subsidy industry from 2017), removal of renewable energy exemption from the Climate Change Levy and reduction in Feed-in Tariff (FiT) levels as a precursor to closure of that scheme by 2018/2019. All coupled with the limited life cycles of existing turbines (typically 25 years), this will inevitably divert future attention towards the potential costs of restoration.
It is important to ensure that the benefits of windfarms in the form of attractive and continuing rents are not countered by accumulating hidden costs. No windfarm development in Scotland has yet been decommissioned, but inevitably, there will be sites that become less economic or where repowering is not achievable for planning or other reasons. These windfarms are likely to be dismantled. Who pays for the dismantling and restoration?
It is vital for landowners and other interested parties to consider now what provision has been made for safeguarding property should a windfarm lease come to an end. This could happen before the natural end of a lease, if a developer was to breach the terms of the lease or go into liquidation etc. The best policy for landowners is to insist on a robust restoration provision in the lease with the developer being bound to put in place a bond or other form of financial guarantee or fund in terms approved by the landowner, whether the restoration provision is a joint provision in favour of the planning authority and the landowner or not.
Developers are generally willing to provide restoration bonding or reinstatement accounts for larger wind developments but often argue that it is for the planning authority to review these and for the landowner to simply accept what is negotiated with the planners. This applies not only to the amount of the bond/account sum, but also to the detailed terms.
Important questions to ask are:-
- Has the restoration provision been set at a level that truly reflects the potential cost of restoration? There is growing evidence that the costs of removing turbines and making good damage will exceed bonding levels in place by a significant amount (by up to five to 10 times in some cases). In setting initial bonding levels figures have been adopted quite arbitrarily and seemingly without detailed consideration of local circumstances such as the precise extent of reinstatement works required by the relevant planning condition or the length of access routes involved.
- Is the landowner a party to the restoration provision and what restrictions apply on the landowner’s ability to make a claim? Many developers exclude landowner participation leaving the landowner dependent on third parties in the restoration process.
- Is the period of the restoration provision sufficient? Often bonds have a limited life and the landowner needs to ensure that they have sufficient notice of the bond’s expiry so that action can be taken to secure restoration before the bond runs out.
- Who determines when the restoration provision can be discharged – the planning authority, landowner or (preferably) both?
- Is there provision for regular review of bonding levels?
- At future reviews of bonding levels can the potential scrap value of turbines be deducted? Future benefits from scrap have been used by developers to justify holding bonding levels down yet there is no way to predict what scrap values will be in 10 or 20 years’ time and no guarantee that landowners will have recourse to such assets, which could potentially be secured to a third party.
Considerable pressure is applied to landowners to accept bond/restoration provisions which do not afford full protection to landowners and many developers will continue to argue that landlords need not concern themselves with restoration on the basis that the planning authority has statutory duties to ensure this is dealt with. However, the dangers of such an approach are all too apparent from a reading of the January 2014 independent review of regulation of opencast coal operations in East Ayrshire. The review identified major and persistent failings at a number of levels in the way restoration plans (and restoration bonds and restoration) were scrutinised, monitored and enforced, which lead on to bonding under-provision in the region of £161 million.
While the costs of windfarm restoration are unlikely to approach the levels mentioned above it is critical for any landowner or its advisors not to place reliance on restoration provisions negotiated by third parties and it is important for all landowners to take stock and ensure that opportunities for reviewing existing bonding levels are fully utilised and that key dates are not missed.