COMMENT With government-imposed climate targets fast approaching, the UK’s shift to net zero is well underway – and to the surprise of many, the real estate sector has become a driving force in the transformation necessary.
There has been a steady stream of new commitments announced by real estate investors and owners, from Landsec’s five-step strategy to the West Midlands Net Zero Business Pledge. However, with such a wide variety of commitments, alongside frameworks and (sometimes conflicting) government benchmarks, it is difficult to understand what is being fulfilled in real terms. The complexities of these announcements, too, make it unclear which ESG solutions are to be prioritised by property investors.
What is evident, however, is the continued need for the rapid decarbonisation of the power sector, with the surge in renewable energy the main driver of the UK’s falling carbon output thus far. The windy conditions of 2020 led to a record year of renewable generation, and the generation of renewables in 2021 has still outpaced fossil fuel generation and is continuing to grow.
Sending signals
Until recently, best practice for energy procurement has been for landlords to purchase green electricity tariffs from utility suppliers, a route which has been heavily criticised by energy regulator Ofgem for doing little to increase the roll-out of renewables.
The UK’s Climate Change Committee indicates that “most of these green tariffs do little more than simply send a signal to their suppliers that they desire renewable electricity” – a move not in keeping with the UK Green Building Council’s framework definition for net-zero carbon buildings, which stipulates that all renewable electricity that is procured should demonstrate additionality.
As an alternative, more credible form of renewable energy procurement, corporate power purchase agreements have begun to emerge. Popularised by global firms such as Google and Unilever, corporate PPAs are fixed-price, long-term electricity contracts between consumers and generators whereby landlords indirectly fund the development of new renewable energy projects such as solar or wind farms.
They are not perfect: while they ensure that new renewables emerge on the grid, the generation profile is very unlikely to mirror the consumption profile of the portfolio. This means that even with a corporate PPA in place, a company will continue to draw additional power from the grid at peak periods of demand or when the renewable system is not generating. Overall, though, this does ensure that additional renewable generation is funded and comes onto the electricity grid, so they remain the most credible and viable solution on the market for many large businesses.
DIY power generation
On-site generation has become increasingly popular owing to a reduction in the price of renewable energy, namely solar PV. However, on-site energy generation is not purely about producing power at a cheaper rate; it provides a property portfolio with a source of clean energy, protects against energy price volatility and is a driver of positive reputation. If that wasn’t enough, on-site renewable energy systems have a positive impact on the energy performance rating of a building and serve to reduce its risk of obsolescence.
Where on-site generation was once eyed with suspicion, it is now viewed as an investment opportunity, with today’s sustainable businesses seeing energy generation as a strategic asset, rather than a cost. By engaging with solar PV and battery storage options, corporate landlords are given the power to sustain their businesses for the future.
While corporate PPAs are generally regarded as superior to conventional green tariffs, none of the most influential sustainability benchmarks (GRESB, CRREM, the SBTi and RE100, to name a few) distinguish between them and green tariffs, leading landlords to struggle through the muddy waters of guidelines, often resulting in the wrong outcome in the fight against climate change.
While recommended practices within the sector are complex, firms such as Longevity Power use in-house knowledge of the global policy landscape, alongside our proprietary financial modelling system, to provide clients with a truly portfolio-wide approach.
Whether it is rooftop solar, on-site electric vehicle charging or off-site green power procurement, Longevity Power works with landlords to negotiate the sometimes confusing, sometimes illogical sustainability guidelines to help property investors make genuine CO2 savings.
Anthony Maguire is a director at Longevity Power
