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We’ve taken the time again this year to write the UK chapter of the “Environment & Climate Regulation” edition of Getting the Deal Through.
Take a look at our chapter here.
Reproduced with permission from Law Business Research Ltd. Getting the Deal Through: Environment & Climate Regulation 2018, (published in October 2017; contributing editors: Carlos de Miguel Perales, Uría Menéndez and Per Hemmer, Bech-Bruun) For further information please visit gettingthedealthrough.com
‘A friendly and approachable firm’ focused exclusively on the clean energy market where its lawyers have proven themselves as ‘true specialists in the field’ and ‘exceptional practitioners’.
Thanks, Legal 500!
Being a boutique purpose driven firm we don’t put too much emphasis on external rankings (and instead to what our clients say/think about us). But we are very pleased with the recognition we have received with our Legal 500 ranking in the Power category, given the breadth of that category (it’s not solely focussed on renewables, and we are) and the size of the firms we are competing against. It’s nice to be sitting in the same ranking as Freshfields and Eversheds after only two years in business. Thanks to all our clients for putting their confidence in us doing things differently.
We are very pleased to welcome Pinsent’s Nikola Zahariev to expand our project finance team and Robert Tudway, a distributed energy expert, to strengthen our district heating and electricity regulatory team.
Nikola specialises in the provision of advice on the financing of renewable and low carbon energy projects. He has advised commercial banks, multilateral institutions, ECAs, financial and industrial sponsors, fund managers, developers and contractors on projects across the UK, continental Europe, the Middle East and Africa.
Robert advises on commercial, regulatory and public policy issues relating to low and zero carbon energy projects and combines the experience of leading an energy practice in a city law firm, with ten year’s experience as an advisor and policy officer in the public sector on climate change energy matters. He has worked extensively with government departments on low and zero carbon energy matters, projects, policies and regulatory issues, most notably with the (then) Department of Energy and Climate Change and the Department’s Heat Network Delivery Unit.
We are pleased that our commitment to growing a sustainable and ethical energy practice is attracting such strong talent which will help expand our positive impact and the depth and breadth of our offering to clients.
Mongoose Energy has just completed the financing of Warkwickshire’s 15MW Drayton Manor “solar plus battery” farm, targeting almost £5m in local community benefits over the project’s lifetime.
Mongoose Energy, advised by Lux Nova Partners, secured funding for three UK solar farms at Drayton Manor on 27 July with bridge financing provided by Social & Sustainable Capital (SASC) and senior debt provided by Close Brothers.
Robert Rabinowitz, Head of Generation at Mongoose Energy, said:
“This transaction is just the beginning of a process to maximise the community benefit that we can achieve from these assets. We are also keen to acquire more community interest company (CIC) solar sites and urge commercial owners of such sites to get in contact so that we can help them to put such assets where they belong, into community ownership.”
Leapfrog Finance funded the acquisition by Empower Community Foundation of two Community Interest Companies holding a combined 10MW solar assets, constructed by Pfalzsolar. ECF will run the solar farms as community projects for the benefit of the local communities, maximising the community benefit from the project income.
Lux Nova Partners and Johnston Carmichael Chartered Accountants acted for Leapfrog Finance. Bates Wells and Braithwate and Francis Clarke acted for Empower Community Foundation.
Richard O’Rourke, Managing Director of Leapfrog Finance said:
“We’re delighted to have been able to support ECF’s acquisition of this project. It is yet another example of Leapfrog’s commitment to not only enabling community ownership, but maximising social impact. Forecast to deliver over £2m of community income over the life of the projects, it has enormous potential to catalyse the delivery of social impact across a wide spectrum of issues in these communities.”
On 22 June 2017 during the EU Sustainable Energy Week, the EEFIG Underwriting Toolkit was launched to help business leaders, originators, analysts and risk underwriters take advantage of the huge opportunity to deploy capital into energy efficiency investments. It was compiled with several objectives in mind:
to help originators, analysts and risk departments within financial institutions better understand the nature of energy efficiency investments and therefore better evaluate both their value and the risks.
to provide a common framework for evaluating energy efficiency investments and analysing the risks that will allow training and capacity building around standardised processes and understanding.
to help developers and owners seeking to attract external capital to energy efficiency projects to develop projects in a way that better addresses the needs of financial institutions.
to foster a common language between project developers, project owners and financial institutions.
The Energy Efficiency Financial Institutions Group (EEFIG) was established in 2013 by the European Commission DG Energy and United Nations Environment Program Finance Initiative (UNEP FI). It created an open dialogue and work platform for public and private financial institutions, industry representatives and sector experts to identify the barriers to the long-term financing for energy efficiency and propose policy and market solutions to them. It counts many leading financial institutions amongst its members.
Lux Nova Parters is proud to have provided input on drafting of the Toolkit and is keen to promote it to clients as a useful resource to help scale up deployment of capital into energy efficiency.
You can access the web version here and download a pdf of the text here.
Sandford Hydro in Oxfordshire is nearing construction completion, with the 3 Archimedes screws which will power the 440kw run of the river scheme, having been lowered into place this first week of May.
LNP advised Charity Bank on the debt financing of this scheme, which was part funded through a community share raise and partly through debt. Low Carbon Hub which has developed a number of community schemes around Oxfordshire, was the developer.
The scheme should start generating electricity in early July this year.
Real estate investors and lenders have had several years to come to terms with the Minimum Energy Efficiency Standards (MEES) legislation*, which broadly speaking will make it unlawful to let any building in the UK with a ‘sub-standard’ energy rating (currently defined as an F or G rated Energy Performance Certificate (EPC)). This will apply to new lettings and lease renewals from April 2018 and existing leases from 2023. As the 2018 deadline approaches the real estate industry has been waiting to see how some of the finer points of detail will be fleshed out. Importantly, last week the Department for Business, Energy and Industrial Strategy published their long-awaited guidance on the application of the MEES Regulations to non-domestic property. It provides interpretation and guidance for landlords, enforcement authorities and others with an interest in MEES.
Whilst the guidance is not legally binding, it is useful in providing landlords and their letting agents, property managers and consultants with further detail on the practical mechanics of MEES implementation. In this article, I highlight some key learnings for real estate investors and lenders.
The new guidance provides more detail on the following areas:
General application of MEES to non-domestic (commercial) property, such as the meaning of ‘landlord’ and ‘tenant’, application to sub-letting and application to multi-let buildings and mixed use (residential and commercial) assets. Notably the guidance:
confirms that allowing occupation of a sub-standard property by licence or under an agreement for a lease is unlikely to trigger MEES compliance;
indicates that an EPC that has been obtained ”voluntarily’’ (i.e. without legal obligation under the EPC legislation) will not normally trigger MEES compliance.
Relevant technical measures that qualify as ‘energy efficiency improvements’ under MEES, cost considerations and how the 7-year payback calculation will be applied. It includes detail on how to calculate the ‘relevant energy price’ and ‘interest rate factor’ for the purposes of payback calculations.
How MEES compliance will be monitored and enforced, including compliance notices, financial penalties (fines potentially up to £150,000), publication penalties (public names and shaming on the Exemptions Register) and rights of appeal.
Application of exclusions and exemptions under MEES. There is detail on the Exemptions Register, which will be available from April 2017 (whereas it was originally scheduled to open in October 2016). Registration does not attract a fee or charge. Exemptions are made on a self-certification basis with enforcement authorities undertaking monitoring and auditing. Whilst landlords can start earlier, there is no requirement to register exemptions until the minimum standard requirements come into force on 1 April 2018.
Organisations should bear in mind that if they register an exemption then most of their data will be publicly accessible! Of course, in compliance with the Data Protection Act, no personal data (e.g. names of individuals) will be public. However, most of the data about the building and exemption will be, such as address of property, name of landlord organisation (but not if the landlord is an individual person) and the exemption relied on.
The guidance makes it clear that exemptions claimed by a landlord will not pass over to a new landlord who acquires the property on sale. So a purchaser of property would need to re-assess whether the exemption applies, obtain the appropriate evidence and register it again. This will be an important due diligence point on property transactions. It is a further reason why landlords may determine it is commercially advantageous to undertake improvement works rather than try to take advantage of exemptions as they may blight the property.
One of the exemptions that may be claimed under MEES is where a relevant consent (such as from the tenant or a lender) could not be obtained. The guidance provides more detail on how much effort a landlord needs to put in to gain those consents before this exemption can be claimed.
This guidance is important reading for anyone advising real estate investors or lenders on compliance or sustainability strategy. Many sophisticated investors already have comprehensive MEES programs in place and the banks and real estate lenders have been catching up (for examples see this BBP industry insight paper). The recent guidance does not change anything fundamentally, but will help real estate players to finalise some of their procedures and strategies. It impacts on acquisition due diligence, underwriting, transaction documentation and post-closing actions, as well as asset and property management and lettings.
My key takeaway from reading this guidance is that the exemptions and exclusions will not provide much practical help in avoiding the need to upgrade sub-standard buildings. They may work in unusual circumstances, but generally are quite hard to achieve and maintain and time/money spent doing so will often be much better spent trying to undertake a smart upgrade on the building rather than jumping through hoops to benefit from what will be just a short-term exemption.
One new impact for banks and debt funds undertaking commercial real estate lending that may not have been considered is that they will need to establish a policy and procedures on how to deal with requests from borrowers to undertake upgrade works required under MEES. This may be covered under existing loan documentation and procedures for capex requests, but is there a reason to treat these differently?
We should also remember that April 2018 is really just the beginning of a journey and something of a ‘test phase’ as MEES will apply only to new lettings and lease renewals. Soon eyes will be focusing on 2023 when the minimum energy standards under MEES will apply to all buildings let on existing leases. Due to the public accessibility of some of the data on Energy Performance Certificates, rapid technological advances in data ‘scraping’ and big data analytics, and the much wider applicability from 2023, the issue of poor energy ratings in commercial buildings will become much more transparent. However, it’s a very manageable risk if real estate investors and lenders start planning now.
*The main relevant legislation is contained in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015
David Short is a partner with Lux Nova Partners and former sustainability director and environmental legal counsel with GE Capital Real Estate. He chairs the Commercial Real Estate Lender Sustainability Working Group for the Better Buildings Partnership. Please get in touch if you have questions or require advice.
Reproduced with permission from Law Business Research Ltd. Getting the Deal Through: Environment & Climate Regulation 2017, (published in October 2016; contributing editors: Carlos de Miguel Perales, Uría Menéndez and Per Hemmer, Bech-Bruun) For further information please visit https://gettingthedealthrough.com/area/13/environment-2017/https://gettingthedealthrough.com/area/42/climate-regulation-2017
Happy New Year to all our clients, contacts and friends!
To mark the New Year, we’re moving to a new location: The Stanley Building, 7 Pancras Square, London N1C 4AG.
It’s a great new office space in a great location, just between St Pancras station and Kings Cross station, and behind the German Gymnasium.
We look forward to working with you and to a successful and fulfilling 2017.
