But crucially, the heatwave also put the electricity grid under considerable strain as demand for cooling from offices, shops and other businesses increased sharply. The National Energy System Operator paid close to £1,400 per megawatt-hour – around 17 times the normal wholesale price of roughly £80 – to secure emergency imports of power from the Continent in order to cope.
If, as most climate scientists believe, the UK is heading towards more frequent and intense heatwaves, the case for generating power on site rather than relying solely on the grid grows stronger by the year. A warehouse producing and consuming its own electricity is far less exposed to price spikes, whatever else is happening to national supply and demand, creating the opportunity for landlords to earn extra income while occupiers save on their energy bills.
It certainly helps that solar technology has become dramatically cheaper and more efficient in a short space of time. The cost of a typical commercial rooftop system has fallen by roughly two thirds since 2010.
Where should these solar panels go? The answer is simple: the industrial and logistics sector boasts some of the biggest roofs around. Independent research commissioned by the UK Warehousing Association estimates that the roof space on the largest fifth of the UK’s warehouses could host around 15 gigawatts of solar capacity – enough to increase the country’s total installed solar power by around 70%.
But fewer than one in 20 UK warehouses carries any solar, despite warehousing accounting for roughly a third of all commercial roof space in the country. The reason so little rooftop solar has been built is a genuine and understandable misconception about who benefits. Landlords have tended to assume that if they pay to install panels, it is the occupier downstairs who gets the free electricity while they get nothing back.
But, structured properly, that is not how solar power needs to function. A landlord can fund the system and sell the electricity generated to occupiers at a rate below the grid price, structured as a straightforward private power agreement. In this model, the occupier saves money from day one and the landlord recovers the capital cost in four to five years, with everything after that point pure profit.
Persistent misconception
I regularly hear that a building cannot take solar because it is let on full repairing and insuring terms, or the occupier procures its own energy. These scenarios are exactly the settings a private power agreement is designed for, and the idea that they rule solar out is one of the most persistent misconceptions in the market. There is no publicly available standard for these agreements, which is why Bidwells has developed its own model documents, as getting structuring right is where many advisers in this market fall short.
But none of this works if the solar power system itself is wrong. That is why we developed our own sizing tool to optimise a system’s specification against the return a landlord needs.
A rooftop solar strategy does not require a leap of faith. The technology and the returns are proven. It just requires landlords to move on from treating solar as a box to tick for ESG reporting and to start treating it as an income-generating asset that most of the industrial and logistics sector has left unbuilt, on infrastructure it already owns.
This summer’s heatwaves were a reminder of how exposed the UK’s energy supply is to extreme weather and of the continued impact of climate change. But for individual landlords, they are also a reminder that every cloud has a silver lining – and, in this case, so does every roof.
