Out-Law Analysis | 29 Oct 2020 | 9:17 am | 5 min. read
When renewable energy projects are being developed, it is crucial to think ahead to future financing, sale or investment transactions to ensure that there are no skeletons in the closet that may derail those processes.
Experience shows that planning and consenting is a crucial area in the process of selling, buying or financing solar and storage projects and there are a number of risks which should be identified and mitigated against.
Written by Peter Cole, who specialises in renewable energy projects at Pinsent Masons, the law firm behind Out-Law.
Judicial review, or even the threat of it, is one of the most likely issues to cause an investor, purchaser, or most acutely, given their risk profile, a financer, to turn its back on a project.
Put simply, judicial review, when brought by a determined and well-funded objector, can be a costly and time draining process for a developer, with an uncertain outcome. Not only this, but the stakes are high: should a challenge be successful, the planning permission could be quashed, with the determining authority required to re-make the decision in a compliant manner, which may not result in a fresh planning permission.
There are two lines of attack to take to minimise judicial review risk, both relating to communication and consultation.
Firstly, whilst the most vociferous objectors may never be persuaded in favour of a project, particularly for renewable energy, there are a percentage of claims that could be eliminated with a little sensitive consultation work with local stakeholders, to listen to their input and address concerns early on, or even to simply provide them with updates on the scheme and what to expect when, and how it would impact them. This would hopefully curb some ill feeling towards a project and developer, as well as potentially eliminating avenues of attack.
Secondly, when developing a project, it is also crucial to maintain solid communication lines with the local authority deciding the planning application, and for developers to give authorities the necessary resource support and information.
This is vital because it is the decision of the local authority that will be the subject of a judicial review claim, and a properly made application is less likely to become reviewable.
A planning permission must strictly cover all required elements of a project, as any omissions or deviations may be a red flag during a due diligence exercise.
A regular example of this issue for renewables projects is that grid connection cables can be overlooked, often with those involved in a planning application assuming that they will be constructed by a district network operator (DNO) under their permitted development rights, or assuming these can be laid under other powers, such as consents relating to highway modifications or development.
To confirm these assumptions, it pays firstly to check the project’s grid connection offer, in co-ordination with those team members dealing with planning and grid, to understand what contestable and non-contestable works will be undertaken by the DNO.
Based on this information, if there are any gaps, it can be made clear where the works by the developer ends, and those of the DNO start. If an error is discovered after consent for the project is granted, an amendment should be sought to regularise the position prior to the project being subject to due diligence, bearing in mind the time and resource commitment for this.
In a similar vein, a regular issue that arises is that a project is built which does not precisely match its planning permission. These discrepancies often arise during construction when projects are under time pressure, or in the face of construction challenges not anticipated at design stage.
If these points are discovered by a buyer or financer, they will be attributed as an enforcement risk even only for a minor deviation, and therefore should be shaken out as soon as possible. To do this, it is highly recommended that prior to financing or sale, the developer should double check that the as-built site matches the planning permission, and any differences be regularised with an amendment application without jeopardising a future transaction.
It is always advisable to build in as much flexibility as possible in a consent. If the project is sold, this will assist the ultimate owner or developer, who can work within an envelope and be able to use a different technology type that may be a more viable option at the time of construction without having to make an amendment application due to differences to the application.
An example of how this is may arise is where a certain inverter type is specified in the planning application, perhaps forming the basis for a noise or visual impact assessment. In this circumstance, as technology progresses, a more efficient type of inverter may become available with less visual or noise impact.
However, as the older type was the basis of the application assessment, unless an amendment application is made a local authority may be reluctant to sign off a condition based on the new inverter.
To prevent this, specificity on technology should be avoided where possible, and a “project envelope” approach taken for any environmental assessment, with a worst case used and this expressed to be so. This would allow broader possibilities for the actual infrastructure to be used by the ultimate builder of a project, provided that such changes are of lesser effect than originally assessed.
Planning permissions must contain a limitation condition, which requires works authorised to be “commenced” before a given date, usually three or five years from the date of grant of the permission.
Often planning permission will be obtained by an applicant who does not intend to build out the project. If a sale is delayed, a project can sit on the shelf for a while, with the clock ticking on the implementation period. This means that a buyer will often have a mountain to climb having to discharge pre-commencement conditions before being able to “bank” the planning permission through implementation works.
While the nature of works required to implement a permission are not typically too extensive or onerous, it is sensible for a developer of a project approaching sale or financing to have a clear understanding of the timescales involved in implementing their specific planning permission.
In particular, conditions should be analysed, especially where these may limit the times construction can be undertaken. Such conditions could include the prevention of works during a bird breeding season, or the requirement for extensive surveys or work to discharge, such as where an archaeological survey is required.
These activities and restrictions, along with the need to discharge other pre-commencement conditions, should be factored in to demonstrate that the consent is bankable before expiry.
If time is short and the local authority is amenable, a certificate could be obtained for some simple proposed works to ascertain their lawfulness and demonstrate that works could fit in with the condition discharge timescale.
Temporary relief is provided to developers with an imminent issue in this regard; under section 17 of the Business and Planning Act 2020 an extension is given to any planning permission in England expiring between the enactment of the legislation on 22 July 2020 and 31 December 2020, so that it is deemed to expire on to 1 May 2021.
Where a project is to be sold or financed after discharge of conditions, it must be checked whether the conditions have been properly discharged, especially the pre-commencement conditions.
Some local authorities across the UK have more formal processes than others for notification of condition discharges. The best form from the perspective of a purchaser or financer is a formal notification, on headed paper, confirming that a discharge has been made.
Many local authorities will issue simple email confirmations of discharge, which is acceptable for expediency. However, some risk-adverse financers and occasionally purchasers prefer a more formal notice so as to overcome an accusation that the discharge was not properly made.
The best advice when receiving a discharge notice in an email therefore would be to ask the officer to provide this on headed paper in the usual discharge format – an easy step to overcome a potential issue later.
Peter Cole is an expert in renewable energy projects at Pinsent Masons, the law firm behind Out-Law. Peter can be contacted at [email protected]
07 May 2020