This document discusses on-site energy generation solutions for UK businesses facing increasing energy costs and green regulations. It outlines the benefits of on-site generation such as enhanced energy security and long-term stable energy costs. The document provides guidance on setting up successful on-site generation projects, including developing a clear commercial proposal, achieving competitive tension between developers, and properly allocating risks and responsibilities between the site owner and developer through a development agreement.

1. Onsite generation solutions
- fair risk allocations b/w owner and developer
Andrew Hedges – andrew.hedges@nortonrosefulbright.com
Partner
Norton Rose Fulbright LLP
30 October 2014

2. UK business challenges
• Increasing energy bills
• Increasing green regulation
• Tough trading environment
• Reduced capex budgets
2

3. Why On-site Generation
• Enhanced energy security
• Long term stable energy cost
• Mitigate or avoid levies on energy supplies
• PR via renewables or community energy strategy
• Good pool of third party developers / financiers
3

4. On-site Generation – Getting it right
What it would look like:
• Site owner puts in the work to decide:
• What does it want
• What risk will it accept to get that
• What can it offer to facilitate process
• Site owner develops clear commercial proposal reflecting this
• Achieves competitive tension between well-funded developers
that can meet timescales and make offers that properly reflect
owner expectations
TODAY – examples of issues that should be considered upfront
4

5. Value Proposition
• Where does value lie for Site Owner?
• How is it extracted?
Value levers:
• Rent under lease
• Cheap power (eg long term direct PPA)
• Share of asset value
Power
Is there a minimum secure return required?
Is there an interest in more risk vs greater upside?
- eg lower rent but greater share of upside under energy / benefit sales (if export power)
Important to consider how value delivered and tax treatment of this
- eg SDLT issues around indirect consideration for lease
- accounting treatment re finance leases
5
Project
Disposal
Value
Green
Benefits
MSA Rent

6. Property Issues
• Lease Option and Lease terms will likely be core element of deal
• Need to think about what developer will want:
– Limited risk re adverse title entries (unregistered land / third party rights / reservation
of rights for mineral extraction)
– What is land being used for and when will it be available (eg process and cost
allocation for removing existing tenancies)
– What access offered (during construction / on-going)
– Robust restrictions on use of adjoining / neighbouring land
– Limited scope of any lift and shift rights re grid connection (or compensation)
• What about from Owner perspective:
– Rent re-openers (if nominal, what can trigger change)
– Limits on tenant right to extend
– Fair allocation of risk re environmental liability
– What is approach to de-commissioning assets as at end of term
– What is the credit strength of the tenant (eg developer SPV?)
6

7. Offtake Issues
• Will energy demand take full generation?
– Private wire PPA structure possible
– This should allow for cheaper power than retail prices for user (eg avoidance of
levies imposed on standard energy supplies
• BUT…
• A developer will need to consider revenue certainty
• Likely means PPA to be take or pay
• With strong termination compensation backed by credit worthy entity
• Mitigate this through enabling export of power
• Low host demand = flip to export
• Possible upside to be shared
• Needs to be properly documented (eg easement to grid connection)
• Note export model means grid connection timing needs to be
considered early
7

8. How to get there – role of Development Agreement
• Who does what?
• Decision making
• Who carries the costs and how is success incentivised?
• Exit strategies if circumstances change
8

9. There is a path to a coherent energy strategy that
reduces costs whilst delivering sustainability
…but it takes the up-front work on strategy to
choose the right solutions and deliver them
andrew.hedges@nortonrosefulbright.com
9

11. Disclaimer
Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP,
each of which is a separate legal entity, are members (‘the Norton Rose Fulbright members’) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the
activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.
References to ‘Norton Rose Fulbright’, ‘the law firm’, and ‘legal practice’ are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together ‘Norton Rose
Fulbright entity/entities’). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is
described as a ‘partner’) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or
consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity.
The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose
Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your
usual contact at Norton Rose Fulbright.
11