Financing a Solar Project on Agricultural Land: What Farmers Need to Prepare

Solar energy can provide farmers and landowners with another way to diversify their business, generate additional income and make productive use of under-utilised agricultural land. However, developing a solar project can require significant capital before it becomes operational and starts generating a return.

For farmers considering borrowing to fund a solar project, preparation matters. A lender needs to understand not only the amount required, but the project itself, how far it has progressed, the assets available as security and how the borrowing will ultimately be repaid.

At UK Agricultural Finance, we provide finance for renewable energy projects across England, Scotland and Wales, including construction finance for established renewable energy technologies.

Be Clear About the Stage of Your Solar Project

One of the first things to establish is how far the project has progressed.

UK Agricultural Finance will consider proven renewable energy technologies even before planning permission has been secured. This means farmers do not necessarily have to wait until every part of a project is complete before discussing finance.

However, being able to clearly explain the current position will help a lender understand what still needs to happen before construction and operation.

That includes the status of planning permission, the proposed installation and any work undertaken towards meeting relevant regulatory requirements. For larger renewable energy projects, planning and regulatory requirements can take time, so these should form part of the overall project plan.

Understand Your Grid Position

Grid connection is another important consideration for a renewable energy project.

UK Agricultural Finance highlights grid connections as one of the associated costs that may need to be funded when farms invest in renewable energy. Its lending criteria also state that renewable energy finance can be used for established technologies with established off-take.

For a farmer seeking finance, it is therefore useful to have a clear picture of how the project will connect and what arrangements are in place for the electricity generated.

The more developed these arrangements are, the easier it is to present the solar project as a defined business investment rather than simply an idea for diversification.

Build a Realistic Picture of Construction Costs

Solar projects can involve substantial upfront expenditure. Equipment and installation are obvious costs, but a project may also involve expenditure relating to planning, grid connections and other associated works.

UK Agricultural Finance typically provides renewable energy loans for construction finance. This can allow a farmer or landowner to fund the project without having to sell equity and may create the opportunity to move to cheaper, longer-term debt once the project is operational.

Before approaching a lender, borrowers should therefore have a clear understanding of the amount they need and what that money will fund.

A well-defined funding requirement also helps the lender assess whether the proposed facility is appropriate for the project and the wider agricultural business.

Consider What Can Be Offered as Security

Security is a key part of the lending assessment.

UK Agricultural Finance’s renewable energy lending criteria allow security to include agricultural land and property together with renewable energy assets. The lender’s general criteria state that loans are available from £100,000 to £10 million, with lending of up to 65% of the value of the agricultural land and buildings against which the loan is secured.

There can also be flexibility around which assets provide that security. In one renewable energy project published by UK Agricultural Finance, the renewable energy site itself was already pledged to another lender. Instead, UK Agricultural Finance took security over other farms, fields and farm cottages.

Farmers should therefore consider the wider asset position of the business when preparing to discuss funding, rather than looking only at the land on which the solar installation will sit.

Have Your Off-Take and Repayment Strategy Clear

A solar development ultimately needs to support a credible business case.

UK Agricultural Finance requires established off-take for renewable energy projects and takes responsible lending seriously. Its guidance states that a borrower’s business plan should demonstrate how the loan will help generate enough income or capital for the borrowing to be repaid or refinanced.

That makes the commercial side of the project important. Borrowers should be ready to explain how the project is expected to generate value, what arrangements exist for the power produced and how the loan fits into the farm’s wider finances.

This is particularly relevant where construction finance is intended to be refinanced with longer-term borrowing once the solar project becomes operational.

What Will a Lender Need From You?

Preparing information early can help make the application process more efficient.

UK Agricultural Finance starts with the basic loan information needed to consider a decision in principle. If the application progresses, further information is required, including an independent valuation. A member of the team also visits the farm, while the relevant legal security documentation must be completed before funding.

Farmers should therefore be prepared to discuss the borrowing requirement, the project and its current stage, the proposed use of funds, available security and the plan for repayment or refinancing.

UK Agricultural Finance takes a personalised approach, with borrowers able to speak directly to people involved in lending decisions. This gives farmers the opportunity to explain both the solar project and the wider agricultural business behind it.

Preparing to Finance Your Solar Project

Solar development can represent a significant investment, so finance needs to be considered alongside planning, grid arrangements, construction costs, security, off-take and the project’s route to repayment.

UK Agricultural Finance provides renewable energy finance for agricultural businesses across England, Scotland and Wales, with loans tailored to individual projects and circumstances.

If you’re planning a solar project on agricultural land and want to discuss how it could be financed, contact UK Agricultural Finance to talk through your project, borrowing requirements and available security.