COMMENT The election of the Labour Party in the UK marks a new chapter in progressive energy policies with significant opportunities (and challenges) for the commercial real estate sector.
The new government is swiftly removing barriers to renewable energy deployment, providing property owners and investors with remarkable opportunities amid the clean energy revolution.
As the UK pursues a greener future, a crucial question for commercial real estate emerges: Will those who do not adapt to this net-zero transformation be left behind in a competitive market? The potential rewards are high for those who can navigate this evolving landscape.
Labour’s manifesto aims to establish Britain as a clean energy superpower, with targets to double onshore wind, triple solar power, and quadruple offshore wind by 2030.
It plans to accelerate public charge points’ rollout and restore the 2030 phase-out date for petrol and diesel cars. The appointment of Ed Miliband as secretary of state for energy security and net zero emphasizes this commitment. Shortly after assuming office, the administration took bold steps by lifting the onshore wind ban, approving significant solar projects, and initiating a “rooftop revolution” to drive solar expansion.
Maximising rooftops
The commercial real estate sector possesses vast potential in this energy transition. Research by Syzygy for the UK Government Solar Taskforce shows that commercial properties could yield over 40GW of solar energy via rooftop installations and solar carports.
Logistics and retail parks now have increased potential for self-generating power with planning constraints lifted. Onshore wind installations only require a footprint of 10,000 sq ft. At scale, the levelized cost of energy (LCOE) from wind is around 3p/kWh, while solar stands at approximately 4.5p/kWh. Although the initial investment in wind is higher, it produces 2-3 times more energy, especially in winter.
Combining wind with solar, which generates most power in the summer, creates a portfolio effect that provides low-cost energy throughout the year. This can yield annual savings in the hundreds of thousands for owner-occupiers, while landlords can realise additional value by funding and commercialising this renewable energy – and increasing the asset’s valuation.
Where onshore wind is not feasible, on-site solar remains the best decarbonisation strategy for industrial and logistics sectors. The growth of rooftop solar PV, backed by government support, is likely to enhance the value placed on renewable energy generation in asset sales, with an increasing body of evidence showing premiums for sustainable properties.
Capturing capacity
It is crucial to secure capacity for future EV charging needs. Workplace charging is now considered essential infrastructure, likewise the potential to host overnight fleet charging at offices, shopping centres, or retail parks presents significant revenue opportunities.
We are seeing huge demand for rapid charging hubs at publicly accessible locations, particularly retail parks. There are more than 50 operators to choose from, and the commercial operating models have developed significantly generating significant value opportunities for landlords.
The advance of micro (or smart) grids in multi-unit developments is also upon us. This approach allows multiple buildings to function as a single site, enabling greater on-site renewable energy generation and carbon retention, as well as allowing for the flexibility to manage the site’s power capacity for current and future EV charging needs.
Importantly, this approach should transform the commercial outcomes for the asset owner and their occupiers through lower and much more stable occupational costs.
With these opportunities come challenges, including the need to upgrade the transmission and distribution networks. The UK grid is becoming increasingly congested, and huge investment is necessary to facilitate renewable energy installation.
The Connections Transmission Acceleration Action Plan aims to streamline the process of building power lines and reducing delays for connections. Do not get too excited though – Ofgem’s definition of “acceleration” and yours may not be in line. This will not happen overnight.
Real estate owners must start considering grid connection capabilities during acquisition due diligence, especially for logistics buildings. JLL presented an interesting case of a logistics building in Hamburg seeing its transaction value being reduced by 30bps due to a lack of available grid capacity preventing installation of solar PV for several years.
Last year, I had the privilege of sitting on the UK government’s Solar Taskforce. The new government has said it will review the output and recommendations with a view to continuing the process and publishing the draft report, one notable recommendation from which is to introduce league tables that track and publish occupiers’ and landlords’ contributions to on-site solar energy generation. While this may cause a stir, it would certainly foster greater transparency and alignment between these two in the journey toward net zero.
As the landscape reshapes, real estate stakeholders need to make sure they are informed, proactive and able to leverage these emerging opportunities while navigating the challenges that will present themselves during this transition.
John Macdonald-Brown is chief executive of Syzygy
