Who would sign up for a product that might cost £50,000 one day, £1m the next, and you can’t guess which kind of day it’s going to be?
Developers, alas, don’t have a choice. Making an electricity connection to the National Grid involves what feels like quasi-random pricing, long waits, massive uncertainty, over-specification and under-satisfaction – and that’s just the start of a long list of gripes.
Add to this growing fears that residential development is reserving large chunks of electricity capacity it doesn’t need, and in the process making the logistics developer’s life harder (see below) and it turns into a 230-volt nightmare.
Simon Cox is a first vice-president project manager at Prologis, and the man responsible for getting power to its 23m sq ft of industrial premises. EG didn’t actually see his eyes roll Heavenward when he spoke about electricity supply problems – but even so, the exasperation is evident.
“The price you get charged depends on how many developers are making applications at once. Too many, it stretches capacity, and the price could rise. And the price you get charged all depends where you are in the queue,” says Cox.
Each developer reserves a certain amount of capacity – whether or not the scheme is viable, deliverable or imminent. If in doubt the developer will reserve its estimated peak requirement and then some (most big warehouses’ peak need is 2-4MVA). This leads to what Cox calls “ghost capacity” – over-generous allocations going to sites that may or may not get built. This means less capacity for sites that are really moving forward.
The danger is that in every neighbourhood there is an unknown and unknowable tipping point when the “ghost” requirements spook the live developers. This results in sudden huge increases in connection pricing needed to enhance the local power infrastructure to meet the “ghost” requirements, plus the new live schemes. A new substation – if that is required – could be seven figures – which is why some late applications get charged so much more.
Developers with a good reputation and plenty of time to plan ahead say they can mitigate this: being trusted by the power distributors delivers more than just a nice warm feeling. But even the most trustworthy and prudent developers occasionally get stung.
Andrew Smith, partner at Carter Jonas, and a veteran of battles to make power connections, says the system also stings occupiers.
“There’s no real way to control the cost, particularly in some Midlands locations,” he says.
Smith says he has a client in the Midlands that wanted to upgrade its power connection. The quote ran into seven figures – so they concluded it would be easier and cheaper to move to new premises elsewhere, rather than upgrade power at their existing site.
Occupiers such as Sainsbury are known to take these kinds of issues very seriously – although the supermarket did not respond to EG’s invitation to talk about it.
Volume developers such as Prologis haven’t yet abandoned development plans thanks to power headaches – but it’s coming. Simon Cox says: “We’re approaching a cliff edge in power capacity in some locations.”
Tempting, then, to generate your own power on site as DB Symmetry plans to do, particularly if home-grown electricity can smooth out the peaks and troughs in occupier energy usage? Well, maybe less so. Verdion has pioneered solar energy on warehouse roofs in Europe, and would like to do the same at its 6m sq ft iPort, Doncaster.
Verdion development director John Clements says getting power is a struggle – especially if your application lands on network desks at the same time as rival schemes. “We’ve had some challenges and some quite expensive solutions,” he confesses. But exporting power from a site into the grid turns out to be another game entirely. “Bureaucratic and complex,” is his discouraging verdict.
Savills’ energy consultancy director Miles Thomas sighs like he’s heard all this before. He says that a big re-think of logistics property may be necessary.
He says: “If we were starting from scratch, we’d put big energy users such as logistics next to the sources of power – and in effect create energy parks, where the power plant is one of the occupiers on the industrial site. It provides the landlord with income, other tenants with power to meet surge need. That kind of thinking would re-draw the map of industrial sites,” he says. “Some new and interesting locations would get promoted.”
Developers and consultants agree these problems are all but unsolvable, so long as the UK has the awkward and heavily regulated electricity market it presently enjoys.
It’s not all gloom. The good news is that increased energy efficiency means most occupiers – and developers – have sufficient headroom in their electricity capacity allocations to meet increased automation needs.
But, for now, the industrial sector’s potential power failure is a problem with no obvious solution.
Resi power struggle
Residential developers are mopping up massive electricity allocations years ahead of potential development – and it is damaging the industrial sector.
So say developers and consultants, who worry that upfront electricity allocations for residential schemes that may take decades to deliver are endangering today’s warehousing and factory schemes.
Savills’ director Will Cooper says: “I’ve a case now where the spare juice in a local network is all reserved to a residential development. It’s the equivalent of land-banking by resi developers, only this is power-banking.”
EG INDUSTRIAL WEEK
• National agent tightens its grip on industrial agent league
• Has cloud computing turned industrial real estate into a liquid asset?
• Can industrial and residential ever be bedfellows?
Can industrial and logistics space be successfully incorporated into mixed-use development?
