Solar panels at Flamingo Flowers' processing plant in Sandy, Bedfordshire © Syzygy Consulting
A previous article for Property Journal discussed the commercialisation of low-carbon tech, and how the market has been developing exponentially. This has created considerable opportunities for landlords and tenants to work together, offering value for both parties and reducing operational carbon – a win–win situation.
This was the case when Aberdeen Standard Investments (Standard Life Investments Property Income Trust) (ASI) approached one of its key customers, Flamingo Flowers, after a strategic review by ASI into on-site renewable energy generation potential in its portfolio. As a major worldwide flower grower and distributor, Flamingo consumes more than 3.2 million kilowatt–hours of electricity annually at its 12.5 acre flower processing plant in Sandy, Bedfordshire.
The site was thus identified as having significant on-site generation potential by Syzygy Consulting, which was engaged to conduct the portfolio review.
Solar photovoltaics (PV) is one of the most advanced renewable energy technologies and the most relevant for landlords to consider, thanks to the following benefits.
PV can be installed on existing buildings with minimal disturbance during construction and operation, using roof space that would otherwise remain empty.
PV outputs can be accurately forecast over the course of a year, and investor returns are generally reliable if systems are properly maintained
As projects have become more common, agreements for landlords to supply electricity from low-carbon sources to tenants have been standardised.
Rooftop PV is suited to retrofitting on buildings, allowing landlords to meet ambitious environmental, social and governance (ESG) goals while creating a long-term income stream that can be valued on sale. In many circumstances, these projects also benefit occupiers by reducing their operational costs as they buy the power from the landlord at a discount to the market rate.
The key challenge is working with clients – typically commercial landlords – and occupiers to find the balance between their respective commercial objectives. The physical parameters of each site must be considered to enable the best technical measures to be selected.
A lease variation structure then needs to be put in place that satisfies both parties; it documents the agreed price for the purchase of solar energy and allows the landlord the access to equipment necessary for maintenance without negatively impacting the full repairing and insuring lease and leaving the landlord with unreasonably onerous obligations.
The recommended solution has to be both commercially viable and practical to ensure the system can be installed on budget at the proposed size with minimal disruption to the occupier. Syzygy continues to operate and monitor 99% of the 650-plus renewable projects on which it has advised over the past decade, taking a long-term approach.
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At Syzygy, we identified the opportunity for embedded generation at this site following a review of the ASI property portfolio. The significant roof space at Flamingo's plant along with the grower's high level of electricity consumption for cooling prompted us to propose a large 918kWp rooftop PV system, which could help to decarbonise the site's energy supply.
Having completed a feasibility study, we worked with the landlord to present the opportunity to the tenant. Overlaying the forecast solar generation profile onto Flamingo's energy usage data indicated that most of the solar generation would be consumed on site, minimising the need to export surplus to the local grid: the higher the share of the power that is consumed on site the better, as a commercial rule of thumb. Any solar energy which reduces the amount of energy an occupier needs to buy from their grid supplier attracts a higher price – closer to retail pricing – than energy sold to the grid, which is sold at the wholesale energy market price.
Once the system was signed off by ASI and Flamingo, Syzygy finalised the size and design and ran a competitive tender, to which four solar contractors responded. From this process we were able to recommend a contractor that was then engaged to construct the installation. Syzygy consider the quality of equipment and designs proposed, and the relevant experience of the contractor, along with the proposed price when making our selection.
The site is very busy, operating round the clock, and careful project management was key. Syzygy's project managers and engineers visited at key stages to check progress and review the quality of the build.
On completion, the contractor provided a complete operation and maintenance manual and on-site handover to key site staff. As this is a large electrical installation generating DC power, all the paperwork has to be checked, test certificates verified and responsibility for the installation properly transferred.
ASI funded the project and is selling the generated power to the occupier at a discount rate for the remainder of its lease term. Indeed, Flamingo should save £25,000 in the first year, and savings are expected to grow with time as the price of conventional energy is expected to rise faster than the Retail Price Index, to which the Flamingo solar energy sale price is linked.
The installation of the system was completed within budget, and commissioned and connected to the local grid in June 2020.
Monitoring and ongoing maintenance must always be considered because technical issues do occur from time to time, and in most cases this means lost income or savings.
Putting a maintenance contract in place ensures that the system is covered for both preventative and reactive maintenance. Remote monitoring enables this essential provision, as well as allowing for the accurate reporting required to meet ESG targets.
While these projects are tricky to put together commercially and technically, everyone benefits from them. With more than 200 tonnes of carbon dioxide saved in the first year, not only does Flamingo Flowers makes strides towards meeting its ESG targets but it contributes towards fulfilling ASI's Net Zero Real Estate strategy.
Terry Unitt MRICS 20 March 2023
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