Powering ahead or down? UK's grid lock constraining the renewable transition & property development
The UK saw the second-highest proportion of renewable generation in 2022, with wind power as the dominant source. Despite offshore wind generation reaching a record high and domestic solar installations reaching an eight-year high, there remain significant barriers to mass renewable electricity generation. Perhaps the most significant is electricity grid infrastructure.
5 minutes to read
I spoke to David Goatman , Head of Energy and Natural Resources at Knight Frank, to help shed some light on the issue.
Renewable generation is growing
Global emissions may have reached a new high in 2022, according to a report by the International Energy Agency (IEA), but progress is being made in renewable energy generation. In total, renewables accounted for 90% of last year's global growth in electricity generation. Further growth is expected. Indeed, the share of power generation generated by renewables globally is forecast to rise to 35% by 2025, up from 29% currently. In 2022, solar PV and wind generation increased by a record amount.
The benefits, particularly for the built environment, are massive. Decarbonising electricity will reduce building emissions and be critical in reducing the sector's overall carbon footprint. The UK is moving in the right direction, with renewable generation growing by 6% last year, according to the IEA. Collectively, renewable and nuclear energy generation accounted for almost half of all electricity generated in Great Britain last year, according to separate figures from the National Grid Electricity System Operator (ESO). Wind was the largest renewable source, accounting for 26.8%, with solar generating 4.4%.
The UK government has set targets to increase offshore wind operating capacity to 50GW by 2030, up from 13.7GW. If that target sounds ambitious, it’s because it is. But we are seeing results, offshore wind generation has increased sixfold in a decade and reached a new high last year. On the solar front, the aim is to increase generation fivefold by 2035. On a domestic level, installations of MCS-certified solar panels reached an eight-year high of almost 130,000, according to MCS data.
Real estate owners, from those with land holdings or commercial buildings, will benefit from greater renewable power and play a pivotal role in increasing renewable capacity across the UK. However, large-scale projects for all renewables are facing an increasing number of hurdles which could limit growth in power generation at the speed the UK government is targeting.
Removing barriers is critical to build out supply
The ability to secure energy supply has been a critical area of concern for investors and occupiers and is holding up development across the country. Perhaps the most high-profile case occurred recently in west London, where the GLA implemented a moratorium on new development because of grid capacity issues.
"The distribution network operators (DNOs) are stretched by the amount of demand coming through", noted David Goatman, Head of Energy and Natural Resources at Knight Frank. "This is for both sides of the equation; developers are struggling to secure connections for new projects, and those seeking to build out renewable generation sites are unable to connect to supply."
Indeed, some estimate that renewable energy projects face a 15-year wait to connect to the grid. The UK isn't alone in facing outdated infrastructure. In the US, the time taken for a developer to receive interconnection has roughly doubled since 2015 to just shy of three years, according to a study by the Lawrence Berkeley National Laboratory noted that. Octopus Energy Generation set out the issue stating there is 200GW of connections queued up and they offer suggestions to "End the gridlock".
Planning also can lead to delays and restrictions. A recent report by Carbon Brief outlined that planning restrictions have led to a near-7GW shortfall in new onshore wind capacity in England since 2015 compared to previous installation rates. "Even if you proceed with options and planning work DNOs have been known to change the size or date of connection after granting, which can add additional costs and risks for investors," notes Goatman.
What real estate owners can consider
There is the opportunity for those with rooftop space or land to generate power for personal use or an income stream. For those wanting grid connection, the above barriers remain in place, but there are options for those who want to generate power without connecting to the grid, but this does bring other risks.
"There are systems called export protection", explains Goatman, "where you sell the power generated directly to the occupier; however, this comes with a high-income risk – i.e. if the building is vacant or demand drops, there is no option to sell power to the grid. With recent energy costs, this option has become less risky as the price paid from selling directly to occupiers versus the price you'd get from selling to the grid is markedly different. There used to be around a 5p differential that has risen to more than 15p."
Goatman explains, "direct private wire can be difficult to make projects work. You must secure a strong counterparty to take the power if you are not connecting to the grid. Even with storage capacity, if these aren't connected to the grid, they cannot hold power for the long term. There is a risk that the counterparty needs to downsize operations and power usage, or could even go bust, adding another layer of risk."
"Private wire projects, normally either small ground-mount solar PV or rooftop solar PV, deliver new income streams for property assets and are accretive to value using now widely accepted valuation methodologies."
Homeowners are looking to solar to reduce energy bills
Smaller micro-generation (less than 3.68kW) covers most domestic installations and avoids the connection backlog. Green MP Caroline Lucas asked is it time for a rooftop solar revolution? She argues that the best way to speed up delivery of solar energy generation is to "make rooftop solar mandatory on all suitable new homes - a policy which polling shows the British public are already squarely behind, " something which the EU has the aim to do for all new buildings from 2029, with new public and non-residential buildings over 250 square metres required to do so from 2026.
Homeowners are starting to deploy solar to reduce domestic energy bills. According to MCS Data Dashboard, since 2009, 1.3 million MCS-certified installations of Solar PV have taken place. In 2022, almost 130,000 were installed and the pace is rising. The first quarter of 2023 registered 50,700 installations, the highest quarterly volume since 2015, when the government Feed-in Tariff (FiT) subsidy scheme began tapering before closing in 2019. So, whilst a rooftop revolution is some way off, there has been progress.
For the government to meet renewable targets, significant progress needs to be made in upgrading infrastructure to ensure the incentives are aligned. Property and landowners will be at the heart of generating renewable electricity but knowing all the options and viabilities will be critical.
Image by Leopictures from Pixabay