ILI Renewable Energy LP

Investment Strategy

  • Overview

    The Fund intends to acquire and develop four sites in Scotland to the point of achieving Planning Consent. Each Site (or the relevant SPV holding such Site) will then be sold for its full market value at that stage via a competitive tender process or otherwise, returning the value uplift achieved (after deduction of costs and fees and retention of any further necessary working capital) to Investors. The Partnership has already completed Site prioritisation work and will acquire the four optimal Sites selected once the Fund has achieved its Target Equity.
  • Site Prioritisation

    The Manager identified two hundred and fifty three sites potentially suitable for wind farm development in Scotland through an in-depth desktop analysis of wind speed mapping, suitable grid access and population remoteness. Following this analysis, Keppie Planning as the Partnership's Planning Consultants undertook an assessment of the sites to determine suitability and appropriateness of the site in planning policy terms. This assessment included:

    • (i) review of 'Areas of Search' plans produced by Local Planning Authorities to indicate preferred locations for the siting of wind turbine developments; and
    • (ii) researching environmental designations in or around each site (e.g. Sites of nature conservation importance).

    The twenty six sites which achieved a score of four or more out of five in Keppie Planning's assessment process were taken onto the next stage of the site prioritisation assessment. The twenty six selected sites were reviewed by Arcus on behalf of the Partnership. The review involved an initial appraisal of a number of potential technical and environmental constraints based on Arcus' extensive professional expertise in designing and obtaining consent for wind farm developments. The review produced a shortlist of twelve potential candidate sites by considering the following issues:

    • (i) natural heritage and landscape designations;
    • (ii) archaeological and cultural heritage designations;
    • (iii) residential issues such as noise, shadow flicker and amenity;
    • (iv) existing site infrastructure such as roads, railways and power lines;
    • (v) aviation, radar, military issues and grid connection; and
    • (vi) potential cumulative issues with other existing or planned wind farms.

    Detailed feasibility studies were then undertaken in relation to the twelve short listed sites with a view to short listing four sites with sufficient potential for development to warrant taking them through the detailed design and planning process. The detailed feasibility study involved undertaking the following assessments:

    • (i) energy output assessment including roughness modelling and detailed wind resource analysis;
    • (ii) impact assessment for telecommunications and aviation including negotiations with the relevant stakeholders (OFCOM, mobile phone companies, NATS, CAA, BAA, MOD, etc.);
    • (iii) export connection assessment including costs and timing;
    • (iv)assessment of access conditions for turbine erection, operation and decommissioning; and
    • (v) environmental and consenting risk analysis including cumulative impact issues with other projects.

    As outlined earlier, letters of exclusivity have been obtained by the Manager from the landowners of twelve sites including the four short listed Sites, ensuring the Partnership is well placed to successfully and quickly secure the relevant Sites after the Fund has achieved its Target Equity. By screening potential planning issues at detailed feasibility stage, any sites with major planning concerns can be identified early in the process. The sites to be taken forward have been selected due to their potential for success in the planning process. Ongoing management of this process, including engagement with key stakeholders and the relevant Planning Authority, focuses the scope of further investigations and enables each Development to be designed in such a manner as to demonstrate responsiveness to reasonable constraints, thus easing Development progress through the planning system. Arcus is therefore confident that the Developments will be free from insurmountable individual obstacles to receiving Planning Consent.

  • Planning application

    Following acquisition of the selected Sites, the Fund will commence early stage development activity such as grid connection strategy and preparation of Planning Applications. In addition to the Planning Applications, connection to the electrical grid can be a key consideration for a wind farm project. A grid connection strategy is devised early in the development programme to gain maximum visibility of connection timescales and to gain an understanding of likely connection costs. Moves to the new 'connect and manage' system will favour projects with planning permission.

    The Fund will leverage the skills of its advisers Arcus, Keppie Planning, Waterman Boreham and Mason Evans in the preparation of Planning Applications and related documents. The Partnership's management team and selected advisers bring together the full range of expertise and experience required to successfully negotiate the planning process.

    The stages in the planning consent process are described in greater detail in below.

  • Planning Consent

    The planning process always includes a measure of uncertainty, however, as outlined above, good feasibility work and Environmental Impact Assessment, combined with consultation throughout the process, can increase the chances of planning success. Renewable UK estimates the approval rate for onshore wind farm planning applications in Scotland at 76%. (Wind Energy in the UK: A renewable UK State of the Industry Report, Renewable UK, October 2008. Includes approvals following appeal).

    However, the Fund prudently estimates a 50% planning success rate for the purpose of calculating expected investor returns. If planning permission is refused, developers have the right of appeal to either a Local Review Body (for projects under 20MW) or to the Scottish Ministers. Appeals to the Scottish Ministers can be called in for Public Inquiry which can take 1-2 years to complete, although recent amendments to the Inquiry process in Scotland may result in this period being significantly reduced. If Planning Consent is not granted in the first instance, the Partnership and the Manager will liaise with its professional advisers to determine whether to appeal a refusal.

  • Divestment

    Due to the uncertainty and complexity of obtaining planning consent for wind farms, a large proportion of developer value uplift is achievable upon a site's successful consent. The strategy of the Fund therefore is to capitalise on this opportunity by selling its Sites once Planning Consent has been obtained.

    The sale process will be structured in a manner considered by the General Partner and the Manager to offer the best opportunity of recouping full market value, whether through an off market sale or a competitive tender.

    The Fund intends to engage Ernst & Young LLP as lead financial advisers to ensure an efficient sale process at full market value. Ernst & Young has acted as lead financial adviser on five UK wind farm transactions (completed and operational) which have completed within the last two years and is currently engaged as lead financial adviser on the disposal of a further five UK onshore wind farms at varying stages of development.

    Ernst & Young has the largest dedicated renewable energy financial advisory team in the UK, with over 15 years experience acting as lead financial adviser on onshore wind transactions. Ernst & Young was named 'Financial Adviser of the Year - Renewables' in 2008 by Infrastructure Journal.

    The Ernst & Young process is designed to ensure maximum value upon sale by (where appropriate):

    • (i) marketing the project to a wide pool of potential investors encompassing domestic and international utilities, renewable energy developers and financial investors to maximise competitive tension; and
    • (ii) leveraging Ernst & Young's investor relationships and wind farm transaction experience to ensure full participation in the auction and a reliable and value driving process with a timely close.

Onshore Market Overview

Government policy aims to increase provision of renewable energy assets by creating clear financial incentives for development and removing obstacles faced by developers of renewable energy assets. There is clear cross party support for onshore wind, with the Conservative party supporting the Renewables Obligation, the Liberal Democrats committed to driving forward a programme of investment in renewable energy source such as wind and the Scottish National Party recognising the Scottish onshore wind power capabilities in providing both economic and employment opportunities.

  • EU Renewable Energy directive

    The EU renewable energy target is set at 20%, encompassing electricity, heat and transport. In both the EU and the UK, it is recognised that the electricity target will need to be increased beyond 20% to compensate for lower levels of renewable energy in transport sectors.

    The UK is legally committed to delivering 15% of total energy consumption (electricity, heat and transport energy) from renewable sources by 2020. This is equivalent to a seven-fold increase in UK renewable energy consumption from 2008 levels.

  • UK Renewable Energy strategy

    The 'lead' scenario of the UK Renewable Energy Strategy ("Strategy"), published in July 2009, estimates that 30% of the UK's electricity must be generated from renewable sources by 2020, up from 5.5% in July 2009, in order for the UK to meet its overall EU Renewable Energy Directive target. This is due to the immature renewable heat and transport energy infrastructure in the UK, providing an upper limit target for UK renewable heat of 12% of demand and 10% for renewable transport energy by 2020.

    The 'lead' scenario also estimates that 14 GW of onshore wind generation is needed to contribute to the 2020 target, UK 2009 onshore wind capacity was 2.8 GW. The Strategy sets out a number of policies designed to enable the UK to increase its electricity from renewables to 30% of the country's total electricity supply, including:

    • (i) Consultation on changes to the Renewable Obligation ("RO") mechanism, including the extension to 2037 and a wholesale price stabilisation mechanism
    • (ii) Establishing the Office for Renewable Energy Deployment to drive delivery of targets, including through stronger supply chains, changes to the planning system and ensuring quicker grid connections
  • UK Renewable Obligation

    The cornerstone of UK policy implemented to achieve the EU Renewable Energy Directive target is the RO and associated Renewables Obligation (Scotland) 2002.

    The RO places an obligation on suppliers of electricity to source a percentage of electricity from renewable sources. The target for each electricity supplier is 9.7% of electricity generated for 2009/2010, rising to 15.4% by 2015/2016. The RO provides an incentive for investment in renewable electricity generation by giving renewable electricity an additional monetary value above the standard market value of electricity. The obligation is satisfied by the presentation of Renewables Obligation Certificates (ROCs) to OFGEM (the government regulator for electricity and gas markets in the UK). ROCs are awarded for each Megawatt hour (MWh) of renewable energy generated.

    Suppliers are charged a fixed amount per ROC ('buy-out' value) if they do not meet their ROC target and proceeds are distributed to compliant suppliers at the end of every year. Each MWh of renewable electricity can therefore be sold for its 'ROC buy-out' value and its 'ROC recycle' value (equivalent to the share of re-distributed proceeds) in addition to the standard 'brown power' value of electricity.

    The number of ROCs earned per MWh or renewable electricity generated varies depending on the maturity and profitability of the technology. Onshore wind electricity generation receives 1 ROC per MWh.

  • Scottish Government Policy

    The Scottish Government has used its devolved powers to set more ambitious targets than apply to the UK as a whole, reflecting Scotland's huge renewable energy potential. Scotland benefits from some of the highest wind speeds in Europe and has arguably Europe's best wind resource.

  • The Climate Change (Scotland) Act 2009 and Climate Change Delivery Plan

    The Climate Change (Scotland) Act 2009 sets a target of reducing emissions by 80 per cent by 2050, including emissions from international aviation and shipping. Scotland also set a world-leading interim target for a 42% cut in emissions by 2020.

    The accompanying Climate Change Delivery Plan targets 50% of electricity from renewable sources by 2020 and the decarbonisation of Scottish electricity supply by 2030.

  • Scottish Renewables Action Plan

    Support the development of onshore windfarms Maximise community engagement Beauly-Denny transmission line conceptual concept granted Planning System improvements

  • The Value of Renewable Energy

    The outlook for long-term power prices is stable and supports ongoing investment in renewable electricity generation assets.

    Historic revenues from the 'green' elements of renewable energy generation have remained relatively stable over a number of years, while wholesale power has been the most volatile revenue stream.

Wind Farm Planning Process

  • Screening request

    A screening request can be submitted to the local planning authority to determine whether the development proposal in question constitutes an Environmental Impact Assessment (EIA) development under the Environmental Impact Assessment Regulations. The local planning authority will issue a screening opinion which is likely to confirm that an Environmental Impact Assessment is required.
  • Scoping request

    Once a screening opinion has been received confirming that an EIA is required, a scoping report/request will be made. The scoping report looks at all the factors, both positive and negative, that will affect the site should a wind farm be developed on it. The report will cover aspects such as Planning, Landscape and Visual, Ecology, Ornithology, Hydrology, Cultural Heritage, Socioeconomics, Noise, Aviation and Telecommunications, Shadow Flicker and any other relevant site specific issues.

    Each of the Fund's advisers has expertise within specific areas required for the report. The scoping report is usually issued to various departments within the council and to other statutory consultees and will highlight the assessments which are required as part of the EIA and which will form chapters within the Environmental Statement.

  • EIA

    The EIA procedure ensures that the likely significant environmental effects and any mitigation measures are identified and taken into account in planning consent procedures.

  • Environmental Statement (ES)

    The results of the EIA are published in an Environmental Statement (ES), which is a publicly available document that must accompany the planning application and will be used in the consents process. This document contains the independent assessments which were carried out as part of the EIA.

    The ES must include a non-technical summary, which should be written in an accessible way and be advertised and made available free of charge to the public.

  • Submission of application

    A planning application will be prepared that sets out the details of the proposal as informed by community consultation undertaken, pre-application discussions with the local planning authority and correspondence with other consultees.

    The planning application will be accompanied by sufficient information to aid the Local Planning Authority in its consideration of the proposal.

  • Determination

    In most cases, planning applications will firstly be considered by local planning authority officials, who will check that proposed wind farm developments are in line with national, regional and local planning policies or material considerations, before considering the ES and the responses to the public consultation. They will then make a recommendation to the planning committee, which is composed of local councillors, who make the final decision.

  • Appeals process (if required)

    If the planning application is rejected the case can be taken to the Department of Planning and Environmental Appeals (DPEA), which reports directly to the Scottish Government and has the power to overrule the original decision if it considers that it: a) was a justified significant departure from national, regional or local planning policy; or b) did not fairly assess the balance of national or local environmental, social or economic considerations.

    The appeal body may request written or informal representation, or it may decide to open a Public Inquiry - the latter option is often taken for more controversial or complicated wind farm proposals.