Securing project value: Key risks in co-located renewable energy projects

Overview

Whether arising from grid sharing, shared access infrastructure, or close project proximity, the siting of a new development close to another will likely impact both the developer of the new project (the ‘incoming developer’) and the operator of the existing project (the ‘incumbent’), regardless of the technologies involved.

Such impacts can be addressed through early communication and collaboration between developers, facilitating and enabling effective co-existence of what are referred to below as ‘competing’ projects and potential cost savings. Key risks and considerations to keep in mind, whether you’re the ‘incoming’ or ‘incumbent’ developer, can be summarised as follows:

Protective provisions – Purpose and impact

You’ll consider with your advisers what ‘protective provisions’ are needed to safeguard the technical and economic integrity of your project for its lifetime. For example, your landlord might be restricted from carrying out or allowing development close to your project, or from allowing activities on their land that may impact your project’s operations or overall generating capacity. To an incoming developer wanting to bring forward a new project on the same site, these protections are a development constraint that might prohibit the development of a competing project, but can be mitigated through early constructive dialogue, ideally pre-planning/DCO submission.

Collaboration

Facilitating up-front liaison and collaboration with your counterparty regarding interfaces between competing projects as soon as possible will increase the likelihood that such projects can co-exist and thrive. The level of appropriate up-front collaboration will vary depending on the nature of any potential technical and/or economic interfaces. For more complex schemes, you might consider formal early-stage collaboration agreements covering matters such as works supervision, green corridors, designated first project status and information and costs sharing. For less complex schemes, ongoing engagement between developers on the ground without a formal agreement might be sufficient.

Project sites are usually leased, and a landlord will have signed up to protective provisions to protect the value and deliverability for an incumbent project. Early-stage engagement will therefore often involve the landlord and other parties, such as technical advisers.

The aim of early engagement should be to establish whether, from a technical perspective, competing projects can co-exist and, if so, agree terms for future/ongoing conditions to facilitate such co-existence, necessary to protect your (and your stakeholder’s) commercial interests long into the future.

Conditions of co-existence

Conditions for co-existence will vary between technology types and the level of interface between competing projects.

Typically, these conditions are linked to:

• Project yield/performance – Whether arising from impacts on wind flow or solar irradiation caused by physical/adjacent landscape changes, wake effects or other factors, the development of an incoming project may impact the yield/performance of an incumbent. With input from your technical advisers, you’ll be able to model such impact to inform a suitable compensation mechanism, which will enable the new project to be constructed. This mechanism may apply on a retrospective basis or provide for advance compensation with a balancing mechanism, making sure any compensation paid reflects the actual yield/performance impact over an agreed period
• Grid interface/outage – Particularly relevant where projects are sharing grid infrastructure and/or a grid connection agreement. An incumbent developer should consider the impact of outages, downtime, curtailment or other interruptions to exporting capability, resulting from the construction, maintenance, operation and decommissioning of a competing project. You may consider agreeing outage planning/programming measures with your counterparty to manage these impacts and whether a bilateral grid sharing agreement or GridCo structure might address project interface concerns What are “GridCos” and can grid sharing help solve grid connection delay challenges? – Walker Morris
• Shared infrastructure – Through dialogue, developers may identify constructed efficiencies arising from projects sharing infrastructure and access and service corridors (in a way that will satisfy funders). You should think about how shared infrastructure is owned and maintained and how such sharing might impact operation and maintenance of competing projects. Compensation payable for disruption arising from use of shared infrastructure should also be considered, which may differ depending on the project lifecycle stage. Operational risk to an incumbent project will likely be higher during construction or the carrying out of major works to an incoming development, which may be reflected in compensation mechanisms applicable during those periods.

These examples illustrate just some of the ways competing projects might be able to co-exist. Conditions for co-existence will naturally be subject to negotiation on a case-by-case basis with appropriate technical and economic input.

 Documentation

Agreed co-existence principles should be clearly documented to avoid the unnecessary expense (time and cost) in litigating or enforcing protective provisions etc. As well as addressing compensation and protective provisions, ensuring the operational and economic integrity of competing projects during their lifecycle and possible extensions/re-powering, consider what remedies and dispute resolution/contractual problem-solving options are available, with a view to de-escalating matters at the earliest opportunity, reducing the risk of competing project interfaces and facilitating effective co-existence.

How we are supporting developers with their renewables projects

 Dealing with competing projects requires a collaborative and pragmatic solution, considering technical, economic and wider commercial matters. Whilst it may appear to present some immediate challenges, these are just some of the ways our Infrastructure & Energy specialists are working today to support developer clients throughout this process:

• offering legal and practical advice and support in relation to competing projects and the required collaboration/other agreements to facilitate co-location
• giving commercially focused, cross-disciplinary advice and transactional assistance in connection with infrastructure and energy developments which might impact competing projects, including early identification of interface risks, development constraints, and the impact of existing provisions, or indeed the need for new ones
• providing relevant training on grid connection reform, development across land rights and related sector horizon-scanning
• advising on risk management and effective dispute avoidance/resolution strategies when competing projects or related issues have arisen.

For further information, please contact Shane Toal, Jake Smith, or Sophie Linnell in our Infrastructure & Energy team.