By Gurpreet Gujral, managing director, and Francisca Wiggins, director, of Atrato Onsite Energy plc (ROOF)
While governmental collaboration is undoubtedly important in the fight against climate change, particularly as global leaders converge on the UK for COP26, a net-zero emissions world can only be achieved if the corporate sector takes decisive action.
Importantly, a growing list of corporations have begun to make climate pledges. For example, the British Retail Consortium, which comprises some of the UK’s largest companies – including supermarket giants Aldi, Asda, Co-op, Lidl, M&S, Morrisons, Ocado and Sainsbury’s – has set its own ambitious targets to decarbonise stores, deliveries and products by 2030, 2035 and 2040, respectively. This is far ahead of the UK government’s 2050 target.
Obtaining clean zero carbon electricity is crucial to achieving these goals, but the current solutions for sourcing green energy are problematic. A multitude of energy suppliers offer ‘green’ badged energy, but with renewable energy certificates available for purchase at a minimal cost, the authenticity of such claims is difficult to verify.
Another option, entering into a direct power purchase agreement (PPA) with a producer of clean energy – such as a wind farm – poses its own problems, as the logistics involved in obtaining a license from the National Grid to transmit the energy are complex.
Harnessing a proven solution
Alternatively, corporates such as the UK’s major supermarkets can look to harness solutions able to utilise the enormous unused space atop of existing buildings. Through the installation of rooftop solar panels able to directly supply energy, companies can bypass the grid and realise energy efficiencies and cost savings.
While non-domestic energy consumers in the UK paid an average of 14.71p per kilowatt hour to a licensed supplier in the first quarter of 2021, the average cost of onsite solar assets ranges between 8-10p per kilowatt hour. These savings come from the removal of policy costs, supplier margins and network charges for connecting through the grid.
Onsite solar assets can allow a medium-sized supermarket to save about £40,000 per year over 20 years – savings directly contributing to the company’s bottom line. In addition, the establishment of a long-term PPA for an onsite solar asset reduces a company’s exposure to wholesale power price volatility. This concern has come to the fore in recent weeks, as soaring energy costs look set to drive up domestic power prices by 30% over the next year. Additionally, any excess energy produced on the rooftop can be resold via the grid, generating additional returns for the business.
Under existing development permits, rooftop projects of less than 1MW can be installed without requiring special approval – enabling installation to be completed in as little as eight weeks. As consumers increasingly demand action on emissions, proactive companies are able to point to the visible proof.
Stable revenue and cashflow
While investors seeking exposure to renewables typically gravitate towards large scale projects, the meaningful monetary and environmental benefits of our rooftop solar solution, which aggregate a number of smaller assets, cannot be ignored.
Just as cost savings and avoiding price volatility are important to energy consumers, investors seek out certainty of revenue and cashflow stability. By establishing indexed PPAs of an average duration of 15 years with occupiers of the industrial and commercial properties on which the assets are installed, 90% of our revenue is contracted – enabling us to pay out stable inflation-linked returns, with low sensitivity to energy prices. While the NAVs of many UK listed renewable vehicles are highly correlated to wholesale power prices, our solution is about 50% less corelated than the peer group, on average.
Thanks to the falling costs of installing solar PV systems, our assets are profitable and do not require subsidies. In addition, through our established network of supermarket tenants and solar PV installers, we can facilitate an un-intermediated installation process – which avoids developer costs and enables the retention of the majority of contracted revenues. Also, by sourcing the material directly, we conduct due diligence across the manufacturing supply chain, ensuring the production of the solar equipment conforms to the highest quality ESG standards.
A cleaner and sustainable future can only be achieved if corporates become energy self-sufficient. Rather than focusing on faraway carbon offsets, companies must look to better utilise all the assets at their disposal – including the one over their heads.
