08 May, 2018

Renewable Energy - Opportunity or Challenge?

Ireland has a number of energy and emission targets for 2020 and faces a fine of €75 million per annum if 16% of our energy does not come from renewable sources by then. Currently, we are falling short of the targets so there is an onus on us to work together to improve energy efficiency and promote renewable energy.

Greenhouse gas (GHG) emissions is an area where the farming sector has challenging targets to meet and rumours from Brussels about implications for large herd sizes are a particular concern. However, alongside these challenges, the energy crisis also presents opportunities, particularly for farmers interested in diversifying into the renewable energy sector.

Studies show that wind patterns in certain parts of Ireland are ideal for wind energy production. Farmers with land in these regions can obtain a good long-term return on investment through the sale of electricity to the national grid.

Similarly, installing solar panels can diversify farm income and make the farm more viable. Recent tax changes have made investing in solar energy more attractive and land under solar panels can still be used for grazing small livestock such as sheep or calves and for activities such as bee-keeping.

Typically, farmers first think about renewable energy when they are approached by a renewable energy developer. Usually, these developers will seek an option agreement giving them an ‘option’ to acquire access to your lands and to insist that you execute a lease in the event that they wish to develop on your farm at some time in the future.

In exchange for entering into the option agreement, you receive payment. How this payment is structured depends on the terms and duration of the agreement. It is essential to take legal advice and tax advice before entering into these agreements because, depending on the terms, they could tie up your land for up to 35 years. There are also complex tax issues to consider. For example, where land is leased for wind energy and ownership of the leased land passes to your successor while the lease is in effect, the transaction will not qualify for CAT business relief which means your successor will be taxed on the full value of the land. The situation is different for farmers who invest in solar power where a recent change to tax law means that farmers whose lands generate solar energy can now claim Agriculture Relief and Retirement Relief.

We are in a time of great change for Irish agriculture. On a positive note, farmers have a strong track record of evolving their businesses to cope with changing circumstances and for some farm businesses, the renewable energy sector undoubtedly offers good opportunities to diversify income and grow. On a cautionary note, however, developers can make option agreements sound straightforward where in reality they are extremely complex arrangements. Before entering into any agreements, obtaining professional advice is crucial. ifac offers specialist advice in this area. For more information, please contact a member of our team.