Selling Solar Power: The Business Case Behind Shopping Centres’ Solar Investments

Via Which-50, a detailed look at the business case behind shopping centres’ solar investments:

In a softer retail environment, shopping centres have reallocated their floor space. More square metres have gone to food and entertainment precincts as consumer preferences shift. Now they’re looking beyond their four walls — specifically to the real estate on the roof — to generate a new income stream.

Australian shopping centres are transforming into power plants in response to rising electricity prices, easy access to capital and lower costs for renewable energy infrastructure.

Solar panels and embedded networks allow shopping centre owners to generate their own power and on-sell it to their tenants. According to experts the income from selling the electricity generated at the centres already provides a healthy return on the capital invested in the projects.

The projects also lower electricity prices, increase brand value, enhance the sustainability rating of the properties, and help meet carbon reduction goals.

Today’s commercial rooftop solar systems have a minimum 20-year lifespan, and can generate up to 40 per cent of the electricity used by a shopping centre.

The privately owned and managed electricity infrastructure is already popping up on shopping centres owned by Stocklands, Vicinity Centres and Scentre Group.

During 2019, Westfield owner Scentre Group generated approximately nine gigawatt hours (GWh) from solar installations across five of its sites. That’s roughly equivalent to the power used by 1800 homes each year or the output of 1800 residential rooftop solar systems.

Scentre Group has set itself a net zero emissions target by 2030. To help it get there the property group says it plans to continue to invest in solar generation across its assets.

Vicinity, which owns 59 shopping centres, is also targeting net zero emissions by 2030 across its wholly-owned portfolio and is investing $73 million in solar to help it achieve that goal.

As of December, Vicinity’s national solar program had generated more than 15GWh of clean, renewable energy, helping power 17 centres across five states.

Owning the energy network allows centres to swap out a portion of grid power with cheaper solar power, lowering the size of the retailer’s power bill and putting more money in the pockets of landlords who are buying less power from the grid.

For example, Vicinity’s program is expected to reduce its consumption from the national electricity grid by up to 40 per cent.

“We anticipate strong investment returns with the project to generate an IRR of approximately 12 per cent,” said Justin Mills, Chief Strategy Officer, commenting on the project in late 2018.

Stockland’s sustainability play 

Stockland has made a $33 million investment in solar across its retail portfolio.

“The initial planning for our solar rollout for our retail portfolio commenced in 2017, following the success of our first large-scale installation at Shellharbour in 2015,” Amy Hogan, National Manager, Group Sustainability at Stockland, told Which-50.

“Providing solar via an embedded network means cleaner electricity for our tenants and also ensures resilience of power supply into the future.”

Combined, Stockland’s retail solar project is expected to produce 17.2 GWh of energy every year, equivalent to driving an electric car around the world 2381 times.

Sustainability for Stockland goes beyond renewable power generation. And investors are coming on board.

“As part of our commitment to offering customers a more sustainable shopping experience, we also choose to incorporate a number of innovative green principles into many of our shopping centres — including free electric vehicle charging facilities and energy-efficient lighting,” Hogan said.

“We are proud to be consistently recognised as a global sustainability leader and recently signed an agreement with the Clean Energy Finance Corporation for a $75 million debt facility. This will help finance sustainability initiatives aligned with our 2030 net zero emissions target across our logistics, retirement living and corporate head offices.”

The business case for embedded networks 

Embedded networks are an important factor driving the economics for investors. They allow the property owner to buy power for the whole shopping centre through one single meter and then sell it on the tenants, with a margin. However, by removing the fees to supply each tenant with power, the retail tenants end up paying less for power through an embedded network than if they connected directly themselves.

Solar is one of the cheapest sources of power generation that can sit behind the meter, forming part of the embedded network infrastructure.

“Embedded networks are a great enabler for solar,” says Danin Kahn, CEO of TodaeSolar.

TodaeSolar is an Australian commercial solar installer with a client portfolio that includes Stockland, Scentre Group, Woolworths, Coles, Costco, Kmart, and Parliament House.

Owning and managing the electrical infrastructure means the property owner can offer its tenants a cheaper rate of electricity and earn revenue that would have been previously paid to the electricity company. 

“The embedded network owner, which could be the shopping centre, owns and manages the electrical infrastructure and metering that sits behind a gate meter,” Kahn said.

“Effectively they become the electricity provider to the tenants, as opposed to another [electricity] retailer, and they own that infrastructure,” Kahn said.

“It probably reduces [electrcial] retailer profits, because the embedded network owners are the shopping centres are taking some of that profit.”

Kahn predicts the market will continue to grow, noting that shopping centre owners have installed solar on only a small percentage of their portfolios.

“I think it’s still very, very early days and very exciting times for the industry. It is absolutely going to continue to grow and we will see more and more storage come online.”

While it varies from property to property, if a shopping centre is covering its roof then somewhere between 25 and 40 per cent of its power will come from solar, Kahn said. In the future that percentage could be increased with batteries, which could store solar power instead of exporting it back to the grid, to use in the afternoon or evening.

Ultimately, real estate investment trusts (REITs) are investment vehicles, and while the sustainability story increases its brand volume in the eyes of the community, the numbers also need to stack up.

John O’Brien, Partner Financial Advisory at Deloitte, has more than 20 years of experience in the Australian and Asian clean energy and clean technology sectors.

O’Brien explained the investments ‘behind the meter’ take out all the costs associated with the network — for example the poles and wires that transport electricity to the property.

“All the contribution of cost to the wires, which is about half of the usual bill, you avoid that because you’re doing it on your property behind the meter,” he said.

“It can end up being a win/win because the electricity prices actually come down for the tenants because it’s behind the meter and it’s a revenue source for the property owner.”

Investment in these networks requires a capital spend into the millions to install solar panels and a control system, “but the returns are pretty healthy,” O’Brien says.

“The economics of solar ten years ago were a nightmare … now it’s just ‘why are you not doing it? You are just throwing money away if you are not thinking about how to do this’.”

O’Brien cited research that solar photovoltaics have decreased in price by 80 per cent since 2008 and lithium-based battery storage prices dropped 70 per cent over the same time frame.

“Both are continuing to drop in price by approximately 20 per cent yearly. This means it is now much cheaper to substitute renewables for fossil fuel and, in many cases, attain significant economic benefits.”

While the rooftop solar market is gaining traction in Australia, the market for embedded networks is still fairly immature and not yet widespread, O’Brien says. However, the interest is there and investment is predicted to follow.

“We’re getting more and more inquiries, we have done work and are about to start work on big shopping centre owners around the commercial model, how it works in practice and what the finances are.”

“I think it is an area that’s going to grow very quickly over the next two or three years. The economics just make sense: the owners can make more money and the tenants save money.”

“The loser out of that is the energy company. I think the big energy companies are going to continue to have a lot of trouble,” O’Brien said.

Solar trading

The new energy supply and private networks also open up innovative opportunities.

Vicinity Centres commenced a solar trading trial in late 2018, using blockchain technology from energy tech company Power Ledger to use its solar energy and trade energy within the network or send it back to the national grid to be consumed by others.

The blockchain-based system enables Vicinity to manage its energy use and distribution in real time, switching between solar and national grid energy. One of the project’s objectives is get the cheapest power price for its 70 tenants at Castle Plaza Shopping Centre.

“We see our partnership with Power Ledger as a significant opportunity to unlock a future of more competitive energy prices for our retailers and customers while potentially sharing clean, renewable energy to the communities surrounding our centres,” according to Justin Mills, Executive General Manager, Shopping Centre Management.

Dr Jemma Green, co-founder and Executive Chairman at Power Ledger, said using blockchain-based energy trading technology can be beneficial for commercial properties, including shopping centres.

“Generators can configure the energy tracking and trading software to suit the regulatory requirements of governments, local councils and businesses, to assist them in reaching renewable energy targets. Power Ledger’s platform gives shopping centres such as Vicinity the ability to charge tenants for their solar consumption more accurately and in near real time,” Green told Which-50.

“Power Ledger’s technology gives users full visibility over their electricity use by using blockchain. They can sell solar to more buyers and be paid sooner, providing them with the opportunities to take more control over their energy consumption.”

Green said energy is increasingly emerging as a consumer product which is bought and sold in an open peer-to-peer marketplace.

“Just like Uber and Airbnb give everyday people the ability to make money off their cars and homes, property developers will actually be able to monetise their investment in solar power infrastructure — by using blockchain-backed energy trading technology they are able to sell any excess solar energy they’ve generated to the wider community,” she said.

“This could potentially create another revenue stream for developers, which could appeal to more investors for any future property developments in the pipeline.”

Green noted that residential property developers are also interested in including energy trading technology in their upcoming projects.

“By pooling stored renewable energy, this can operate as a virtual power plant to create community-owned power hubs that help support the grid load, especially during peak electricity demand periods, and give more Australians access to renewable energy,” Green said.

This entry was posted on Wednesday, February 26th, 2020 at 4:34 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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About This Blog And Its Author
As potential uses for building and parking lot roofspace continue to grow, unique opportunities to understand and profit from this trend will emerge. Roof Options is committed to tracking the evolving uses of roof estate – spanning solar power, rainwater harvesting, wind power, gardens & farms, “cooling” sites, advertising, apiculture, and telecom transmission platforms – to help unlock the nascent, complex, and expanding roofspace asset class.

Educated at Yale University (Bachelor of Arts - History) and Harvard (Master in Public Policy - International Development), Monty Simus has held a lifelong interest in environmental and conservation issues, primarily as they relate to freshwater scarcity, renewable energy, and national park policy. Working from a water-scarce base in Las Vegas with his wife and son, he is the founder of Water Politics, an organization dedicated to the identification and analysis of geopolitical water issues arising from the world’s growing and vast water deficits, and is also a co-founder of SmartMarkets, an eco-preneurial venture that applies web 2.0 technology and online social networking innovations to motivate energy & water conservation. He previously worked for an independent power producer in Central Asia; co-authored an article appearing in the Summer 2010 issue of the Tulane Environmental Law Journal, titled: “The Water Ethic: The Inexorable Birth Of A Certain Alienable Right”; and authored an article appearing in the inaugural issue of Johns Hopkins University's Global Water Magazine in July 2010 titled: “H2Own: The Water Ethic and an Equitable Market for the Exchange of Individual Water Efficiency Credits.”