Contributors
Improving the energy efficiency of housing has many energy, environmental and economic benefits. These benefits are mainly enjoyed by the homeowner or renter but what if housing schemes could also be designed to incorporate discreet energy production systems which benefit the wider community and society generally? The UK parliament declared an environment and climate emergency on 1 May 2019 and so we consider that this is likely to be an emerging trend over the next decade, with power generation forming a key component of the authorisation of new housing projects.
In the UK the Code for Sustainable Homes is the national standard bearer for the construction and sustainability credentials of new homes. The code sets standards for the design and construction of new homes in a way which minimises their energy consumption and which will help to reduce UK carbon emissions. The code ranges from levels 1 to 6, with most housebuilders notionally building to code level 3. However, from 2015 a revision to the Building Regulations requires housebuilders to incorporate energy consumption reduction devices, effectively placing the construction standard required for compliance at the equivalent of code level 4. Constructing to the standards required by levels 5 to 6 of the code is expensive and not widely utilised.
By establishing a link between the construction of housing and the production of energy generation it is possible to do one of two things: either to create additional revenue streams produced by the sale of energy to residents (if the developer is willing to accept a longer term view) or to construct a local energy network which is capable of sale or rent (ie. to produce a capital return). In either case the home owner or renter should be able to enjoy lower energy prices than would otherwise be available. When designing a private electricity network it is obviously important to have a single (large) primary user to benefit from the resource and our view is that large housing estates provide sufficient 'purchasing resource' to make certain types of power generation schemes viable.
The UK housing market has been slow to incorporate such features. However, there are increasingly examples of development companies, or indeed energy companies, combining the construction of residential housing with 'off-plot' energy generating schemes which provide the twin benefits of positive clean energy generation and enhanced profitability.
1. Solar Power
French energy firm Engie has announced plans to construct 2000 new homes on the site of a 139 hectare decommissioned coal power station site in Rugeley in Staffordshire.
Half of the energy required by the new homes will come from green sources, predominantly solar, and the company is planning for 10 megawatts of solar capacity in total, equivalent to one of the UK’s smaller solar farms. Part of the solution involves floating solar panels on an otherwise unused lake within the scheme. Batteries will be used across the site, both in homes and at a communal power storage facility, to balance out electricity supply and demand.
2. Battery Storage
Tesla offer large scale battery packs contained in custom made housings so that energy can be stored at night during periods of lower cost and discharged at times of peak demand - to provide reduced energy cost to homeowners. It is possible to build a localised grid that can disconnect from the national grid, operating independently and reinforcing overall national grid resilience.
Such systems can be made available to homeowners via a "private wire network" and we have found through client involvement that such systems can be very attractive to investors, given the long term projected increase in the price of electricity. Although we appreciate that this increases the overall scheme cost, leases of completed energy projects of this type can offer attractive yields (typically 7%).
Discreet energy systems of this type offer a developer either an attractive yield, if long term investment/retention is of interest, or alternatively a capital payment on sale of the constructed scheme.
3. Gas to Power
Put simply, this is the conversion of gas to electricity via the operation of a gas turbine. The turbines are visually unobtrusive and create little by way of noise.
General electric offer such systems, which convert liquid and gas fuels to energy, offering one of the cleanest and most efficient methods of producing electricity from fossil fuels in an economic setting. The operation of this model is predicated upon the fact that it is projected over the next 40 years that the price of electricity will track at a higher rate than the gas price, thereby allowing a "turn" on the sale of electricity at higher prices.
This can be attractive to institutional investors prepared to take a long term view in connection with a land rental arrangement or perhaps a capital value on sale.
4. Hydro Power
When developing land adjoining natural watercourses, particularly in upland areas, it seems short sighted to not also build in energy production devices which harness the power and flow of rivers.
There can be issues in connection with the environmental impact of such a proposal, which may increase the time taken to get a planning permission or abstraction licence (required in relation to the use of the flowing water – particularly if a 'river to run' system is required which involves the construction of artificial watercourses to channel the water through). It can be difficult to obtain an Environment Agency consent for schemes of this type, particularly in the context of ecology and wildlife preservation, but the modern breed of hydro turbines are designed in a way which allow fish to pass safely through its blades and systems of this type also have advantages in regulating river flow and minimising flood risk.
Although again the investment cost is relatively significant, returns are reasonable over a long enough time period. The huge advantage with this form of technology is that hydro turbines, known as an archimedes screw, are long established and well proven technology which is relatively simple in its design. This means that once installed, provided this is regularly maintained it should provide a very reasonable working life time (typically predicted to last in the order of 30 to 50 years).
5. District Heating Schemes
District heating schemes provide very affordable ways of cutting carbon emissions and have a low carbon footprint for a fossil generation plant. Such schemes have been used extensively in Sweden, Denmark and Norway but in comparison the UK has been slow to respond.
Essentially this is a distribution system of insulated pipes that takes heat from a central source and delivers it to a number of other buildings. It might be that the heat is produced by burning fossil fuel or alternatively it might involve heat recovered from industry, canals and rivers or from degrading organic materials.
One notable example of this is Veolia, who are providing low carbon energy, through district heating, in the development of 8000 new homes by Newlon Housing Trust at their North Tottenham scheme. This involves the production of hot water and heating from a combined heat and power (CHP Plant) which is projected to save around 6000 tonnes of CO² emissions. Veolia entered into a contract with the site owner to deliver energy to the residents in a way which is sustainable, lowers demand on the national grid and reduces carbon emissions.
Womble Bond Dickinson have advised English Cities Fund in connection with the delivery of their Millbay, Plymouth urban regeneration housing scheme where a CHP Plant has also been utilised to provide reduced cost heat and power to the residents and a district energy scheme for Newcastle City Council at their Science Central development in Newcastle.
We have also advised the Royal Borough of Greenwhich (RBG) borough council in the development of a district heating scheme on the re-developed Greenwich peninsula in East London. In particular this focussed on developing structures which would ensure that the RBG is able to ensure fair treatment of residents as offtakers of heat from the energy centre; structures which ensure that the investment of RBG in the scheme is appropriately protected; and state aid and procurement issues.
The fact that is inescapable is that by building in additional features of the type discussed above this will increase overall scheme investment cost. However, our view is that offer a number of significant advantages for private developers (including financial advantages):
- The incorporation of such devices allows homeowners to take advantage of a subsidised form of either low impact fossil fuel energy or clean renewable energy which is produced locally at lower cost then would be available if equivalent energy were taken from the grid
- There are likely to be significant PR advantages for developers originating schemes where these features are present including enhanced purchaser attractiveness and/or 'new home premium' as the public becomes increasingly environmentally aware and motivated
- The combination of housing and power production is likely to ease the passage of new proposals through the planning system and the emerging requirement for all new developments to produce net environmental gains
- By establishing an 'off-plot' system based upon a local energy network supplying to the residents this potentially allows an energy scheme to be packaged and either sold or rented in a way that produces an attractive capital return or yield. This may have the effect of either improving profitability (thereby delivering higher returns for shareholders) or allowing the delivery of higher numbers of housing.
We accept that there are issues with district heating schemes because there is only one possible supplier (i.e. homes are not also provided with their own boilers to allow independent heat supply) and lack of regulation. Such schemes are probably better suited to Local Authority, Registered Provider or Buy to Rent (BTR) entities.
By tilting ones view to include energy generation as a natural partner with the development of new housing this has the effect of providing solutions to two of the UK's most difficult and pressing issues. The first is the housing crisis (as by doing so this may allow a degree of in-built subsidisation to allow higher numbers of housing to be provided) and the second is the production of clean non-fossil fuel based energy to assist the UK with meeting our carbon consumption reduction targets.
