Renewable energy success 03: Not all land is equal: site selection and due diligence

For renewable energy developers, site selection is not merely about finding available space. Securing a site, whether through acquisition or a long-term lease, requires finding land that satisfies a specific set of criteria. Conducting thorough due diligence is crucial in determining whether these criteria can be met and to safeguard the success of the project.

In this third instalment of our Renewable Energy Success series, we dive into the core pillars of land due diligence: physical, environmental and planning, cultural and heritage and title due diligence. We also explain some of the nuances that make due diligence for renewable energy projects distinct from due diligence for other types of land acquisitions.

1. Physical due diligence

The first question any developer must ask is straightforward: can the land physically support the project?

In additional to evaluating the optimum climatic conditions for a renewable project, physical due diligence involves evaluating the condition and features of the land to ensure it is suitable for both the construction and operation of the project. For example, developers might consider topography, soil quality, and geotechnical stability to determine whether the land can support the necessary infrastructure. Developers must also consider access to roads or tracks, to ensure they have the ability to move heavy equipment and materials to the site during construction.

One of the unique aspects of due diligence for renewable energy projects is an assessment of the physical proximity of the site to existing power infrastructure, such as transmission lines and substations. Renewable energy projects rely heavily on integration with the energy grid, which is why so many renewable energy projects, particularly BESS, are developed in close proximity to each other. Additionally, developers must consider the capacity and condition of nearby utilities. Even if a project has grid access, the relevant transmission line must have the capacity necessary to handle the energy output of the project. If upgrades are needed, this may require regulatory approvals and negotiations with utility providers.

Developers should also consider the proximity of a chosen project site to other potentially conflicting land uses. For example, developing close to residential premises could raise issues with visual amenity, noise and shadow flicker as well as interference with farming practices such as crop spraying.

2. Environment and planning due diligence 

The extent of environment and planning due diligence will depend on whether the renewable project is at an early stage (or pipeline), or if it already has the development and environmental approvals it requires for construction and operation.

An early stage due diligence usually focuses on identifying key red flag issues associated with:

• land use zoning and minimum subdivision requirements for the proposed project area;

• site constraints analysis such as the existence of threatened or endangered biodiversity or the potential for contamination, flood or bushfire risk; or

• flagging key potential land use conflicts that could give rise to a risk that approvals will be delayed or rejected.

Common potential land use conflicts can include proximity to rural dwellings, subdivisions, land of high scenic value, strategic agricultural land, biodiversity conservation areas, state forests, mineral and coal resources, tourism, other renewable energy or industrial land uses or aviation or telecommunications infrastructure.

Renewable energy projects are sometimes situated on sites which have previously been used for industrial purposes, which can carry a higher risk of contamination. As a result, conducting intrusive contamination investigations is a key risk mitigation measure to uncover historical contamination. This step is a key focus for financiers as contamination remediation can be very expensive. Lenders and investors are increasingly scrutinising the measures developers take to assess and mitigate environmental risks, seeking assurances that potential issues have been identified and managed responsibly.

If the renewable energy project already has the requisite development and environmental approvals but has not yet been constructed, the scope of due diligence will typically focus on confirmation or verification of key approvals and the costs and other preconditions associated with the development of the project (such as biodiversity offset requirements).

If the renewable energy project is operational, an environment and planning compliance due diligence involving the assessment and reporting on non-compliances, complaints and regulatory actions will be required.

3. Aboriginal cultural heritage due diligence

It is important to undertake due diligence to consider whether Aboriginal cultural heritage is likely to be harmed. The NSW Department of Environment, Climate Change and Water has published the Due Diligence Code of Practice for the Protection of Aboriginal Objects in New South Wales, which considers the nature of the activity and provides detailed guidance. In particular, not all Aboriginal cultural heritage sites will be registered and so may not appear on searches. Developers should not rely on search results alone.

4. Title due diligence

Even the most promising site, with optimal terrain and clean soil, can quickly lose its appeal if the developer is not able to secure clear title. That is where title due diligence comes in – to ensure that the land can be secured unencumbered and free from third party interests.

Title due diligence involves considering matters such as:

• registered encumbrances such as easements, leases and covenants – an easement or lease could necessitate negotiations with a third party and a restrictive covenant could restrict certain building or use of the land;

• mining tenements, particularly where an access agreement have been entered into with the tenement holder;

• caveats, which could prevent the transfer of land or registration of the developer's lease; and

• mortgages, which will need to be discharged upon the transfer of land or which could indicate that mortgagee consent is required for the developer's lease.

The process does not end there. Unregistered interests, such as grazing licences and access licences, should be thoroughly investigated. If the project site is being purchased, then it is prudent for the developer to order statutory inquiries for the site, to verify key details such as rates and taxes and to determine whether any statutory authorities may have an interest in the land.

Additionally, it is important to consider native title. While searches may assist, they will not necessarily provide a conclusive position. Native title is assumed to exist unless the Federal Court has determined it does not, or there is an extinguishing act, such as a freehold grant. This is the case even where there is no claim or determination over an area.