WIND DRIVES UK REAL ESTATE UP

Scotland’s commercial windfarm site leases headed sky high…property consultant CKD Galbraith’s analyst…[discusses] factors placing an upward pressure on commercial wind farm leases…
Rikki Stancich, 18 February 2011 (Wind Energy Update)

"Land rental values for large-scale wind farms have increased dramatically in Scotland since 2002, according to a report by UK property consultancy, CKD Galbraith…[B]etween 2002 and 2008, rents under new leases increased on average by 200%. In addition, from 2009 to 2010, rents rose by more than 10%. Early indications in 2011 suggest a continuing upward trajectory…[W]ind farm owners and operators can expect to pay significantly higher land rents in coming years…"

[Mike Reid, utilities department head, CKD Galbraith:] "The demand for larger-scale commercial wind farm sites is bigger than the current supply of land. Most of the good sites have been taken up and there are areas of local opposition including owners who don’t want their land used for wind farms. Also more mid-range developers have entered the market looking to develop sites, which is increasing the global demand and pushing up prices…It is outstripping other rental streams at present."

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[Mike Reid, utilities department head, CKD Galbraith:] "Existing projects won’t be affected, given that rent figures are usually agreed at the beginning of the planning and consent process…[with] annual increases…[and] stepped rental uplifts from year 10 onwards…locked into 25-year lease agreements…[but] current earnings from the land lease, compared to other land uses (such as sheep farming), is still higher…Wind farm projects in the pipeline will, however be affected by higher rents…[T]echnological efficiencies…[should] counterbalance the cost, but it will need to be factored into the developer’s financing model."

[Mike Reid, utilities department head, CKD Galbraith:] "…[T]he small-to- medium sized market should still be efficient [the 10% cut in the UK feed-in tariff (FiT) coming in 2014-15]…In the UK, the FiT begins from the date the project is commissioned. Therefore, if a developer starts the planning process now, it could receive a different FiT rate from that which is in place today. This creates a lot of uncertainty for both developers and farmers – ultimately, they are kicking a ball toward a goal that is likely to move…"