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Reform of Secured Transactions in Scotland: Implications for Renewable Energy Projects



By David Bone and Josh Hale.

In March 2020, the UK government signalled a shift in energy policy by announcing its intention to bring onshore wind and solar developments of greater than 5 MWS back into the Contracts for Difference subsidy regime.

The Government is mindful, no doubt, of their legally-binding carbon neutrality targets set the previous year and the need to demonstrate best value to the consumer by allowing the cheapest technologies to compete. While technological advances continue to reduce construction and operating costs, there is still a relative risk of price exposure in subsidy-free renewables projects.

It is no surprise then that investors are attracted by the bondlike nature of these subsidised projects. Although the current economic conditions are likely to mean that there is a squeeze on government money and private capital available for any investments, it is hoped that once the pandemic is over and tackling climate change returns to the top of the agenda, renewables will play a central part in government strategy. Providing some subsidy to onshore wind in particular will likely see increased confidence among funders, with a resulting boost to renewable energy projects in Scotland.

Project Funding and Security

Whether subsidised or otherwise, in any renewable energy project involving third party funding, the funder (or “Lender”) will seek security over the project assets to secure the loan debt. Usually a special purpose vehicle is set up so that the assets of the project are ring-fenced in a single company, the “ProjectCo”. ProjectCo will own the assets required to construct and operate the project (including a lease of the land, project agreements and insurances), and the Lender will seek to take security over those assets.

The Position in Scotland – Reform Ahead?

Lenders should be aware that there is a discrete property and security law regime in Scotland that affects what security can be obtained by Lenders. Scots law is relatively cumbersome and outdated in this area, but given that Scotland accounts for approximately 60% of UK onshore wind generation capacity, it is important that developers and funders alike are aware of some of the quirks of the Scottish system and seek expert legal advice.

In 2017 the Scottish Law Commission (SLC) published proposals along with a draft bill to reform this area, which are currently being considered by the Scottish Parliament. Here, we look at some of the reform proposals which might benefit the renewable energy sector in Scotland.

1) Security over project assets

A Lender will usually seek a “fixed” security over the project assets, equipment, and the lease under which the project land is held.

In Scotland, it is possible for the ProjectCo to grant a fixed security over the lease. The lease will specify that energy generating assets such as wind turbines are to remain the tenant’s “fixtures”, even after they are installed, with a right to the developer to sever the assets at the expiry of the lease. In the event of default, the lender will be able to step into the developer’s shoes to exercise its right to sever the project assets and sell them to satisfy outstanding debt, It is not possible to grant such a security over moveable project assets. This is because the Scottish Standard Security, broadly equivalent to the English fixed charge, can only be granted over land and some rights in land such as a lease. This is relevant because once the assets are severed, they become moveable property and are unable to be captured by fixed security. This may impede further access to finance, as wind turbines in particular have substantial scrap value that may be suitable for collateral for further lending.

The only fixed security that can be granted over moveable property is the possessory pledge, which requires the lender to take possession of the asset. Equity does not exist in Scots law and so the mortgages or fixed charges under English law do not arise in Scots law in corresponding situations. A statutory floating charge exists in Scotland, similar to that in England, and reservation of title, hire purchase and leasing of moveable assets can also be used. However, these do not make up for the current absence in Scotland of a fixed non-possessory security over moveable property.

SLC Proposals

The SLC’s proposals include the creation of a fixed security over moveable property called the “Statutory Pledge” in a new register to be maintained by the Registers of Scotland. Using the Statutory Pledge would mean that the assets would not have to be transferred into the name of the Lender, nor would the Lender need to take possession. It would be created by registration and could be granted over all tangible moveable property, including over future assets (but would not encumber these until they became the borrower’s property).

This could benefit companies involved in renewable energy projects and the wider supply chain in various ways:

  • ProjectCo would be able to grant fixed security over highly valuable energy generating assets where these have not acceded to the land to unlock loan finance.
  • Companies involved in leasing vehicles and equipment to developers would be able to grant fixed security over their highly valuable inventory to unlock finance and generate cash-flow, buy more stock and supply other developers. As the Statutory Pledge can secure future assets, any further purchases could fall within the security, if desired, without the need for a further grant.
  • Similarly, if developers already own vehicles, plant and machinery, they too could grant security over these assets to raise finance, without parting with possession or disrupting their day to day operations. This could provide a practical alternative to hire purchase.
  • Most wind turbines have a life-cycle of around 25-30 years before they require to be “re-powered” – replaced with newer, more efficient technology. The spent turbine parts may still have substantial scrap value, particularly in large wind farms, and could be attractive to lenders as collateral for further loan finance, without the Lender having to take possession.

2) Security over the shares in ProjectCo

Lenders will often take fixed security over shares in ProjectCo as part of their security package. In Scotland, security over shares is possible but requires the legal title to the shares to be transferred to the Lender, who is accordingly registered as a shareholder on the Register of Members of ProjectCo. This so called “Share Pledge” contrasts with England where a lender would take an equitable charge over the shares – merely a right rather than full title.

Separate arrangements are then required to deal with the consequences of transfer, such as voting proxies and dividend mandates back to the original shareholder to allow them to continue to vote at shareholder meetings, and enjoy the rights to dividends.

There is also some uncertainty as to the consequences of taking title to the shares, and whether the Lender in a Scottish Share Pledge requires to be registered as a person of significant control (PSC) in the Project Co under the Companies Act 2006 . There is a consensus in the profession that Lenders do not require to be registered as a PSC, but given that failure to register, when required to do so, carries criminal sanctions, there is anecdotal evidence of a perceived risk which may deter funders from operating in the Scottish market.

Requiring transfer of the shares to the Lender also means security can only be granted once, potentially restricting access to finance as there is no possibility of a second-ranking Share Pledge.

SLC Proposals

The SLC propose that the Statutory Pledge could be granted over some elements of intangible moveable property, including IP and shares. The current Share Pledge works in practice and we arrange these as part of renewable energy projects on a regular basis. However, there are some benefits of reform:

  • the new Statutory Pledge would allow the Lender to take a right in security without the need for a transfer of title and the attendant workarounds.
  • Real or perceived risks for the Lender of going on ProjectCo’s Register of Members would be removed.
  • A second lower ranking Statutory Pledge could also be granted to another lender for further sums, subject to the terms of the first pledge. This potentially gives ProjectCo more funding options.

In the SLC’s view, reform would result in “lower costs and less practical difficulties” than the current Share Pledge. If that is the case it would be of obvious benefit to funders and developers alike.


The draft Moveable Transactions (Scotland) bill, which implements these proposals, has been prepared by the SLC and was presented to Scottish Ministers in late 2017. In April 2020 the Scottish Parliament’s Economy, Energy and Fair Work Committee concluded its consultation on reforms with key stakeholders. It appears that consultation has been broadly supportive of the proposals.

While reform in this area is long overdue (this project is the longest running in the SLC’s fifty five year history), passage of the bill may still be some time away; this area of law is complex and recent events have understandably disrupted ordinary parliamentary business.

In the meantime, as renewable energy projects proceed across the country, it is crucial for all parties to obtain expert legal advice to navigate the specific regime in Scotland to ensure project funding can be secured as smoothly as possible.

Get in touch

Harper Macleod’s Energy & Natural Resources team provides advice on all areas of the energy supply chain and has the necessary expertise to advise on all aspects of secured transactions. To find out how we could help you, please get in touch with a member of our team.

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