Legal Briefing

Ashfords’ retail roundup

The In-House Lawyer Logo

Retail | 23 January 2019

pdf-download-button

 

Can retail help lead the renewables ‘quiet revolution’?

The National Infrastructure Commission was established in 2015 to provide independent advice on the UK’s long-term infrastructure needs. This year it has published the National Infrastructure Assessment (NIA) 2018, one of the recommendations being that at least 50% of energy in the UK should be generated by renewable sources by 2030. The report states that:

‘The UK can and should have low-cost and low-carbon electricity, heat and waste. Ten years ago, it seemed almost impossible that the UK would be able to be powered mainly by renewable energy in an affordable and reliable way. But there has been a quiet revolution going on in this area. There is ample scope to build on this success in years to come. Highly renewable, clean, and low-cost energy and waste systems increasingly appear to be achievable. Furthermore, such a system need not lead to higher bills.’

As an early adopter of energy efficiency and reducing carbon emissions, the retail sector could be seen as leading the way in helping to reach this target. In the early 2000s, retailers were quick to make changes by upgrading to more energy efficient machines, replacing flourescent light bulbs, installing motion sensor lighting along with self-regulating heating, ventilation and air conditioning systems while reducing carbon emissions has saved retailers money. However, these changes were only the beginning of a green revolution and retailers have started to benefit from investment in renewable technologies to not only save money in the long term but also to gain additional benefits such as enhancing brand value, mitigating risks associated with rising energy prices and opening other avenues for generating profit.

Below we look at the incentives in place, the renewable options used by the retail sector and the benefits they have reaped. Finally, we look at the energy consumption audit obligations used to encourage energy efficiency.

Schemes and incentives

The various schemes and incentives currently in place, such as the Energy Savings Opportunity Scheme (ESOS), enhanced capital allowances for energy schemes, Renewable Energy Certificates and the promotion of power purchase agreements (PPAs), have created an attractive market place for renewable energy developers and suppliers. As renewable technologies have become more established, prices have decreased due to the growth in suppliers and the repayment of early research and development costs. The continuing price reductions in the various ‘technological solutions’ mean that renewable technologies are becoming more viable as an option for powering businesses while providing greater long-term gains and energy security rather than merely drawing power from the National Grid.

Solar

While solar panels had previously fallen out of favour due to reduced tariffs, the falling prices for initial installation mean that owners are no longer reliant upon the tariffs to make them economically viable and as such, developers and landlords have realised that the significant roof space at retail locations are well placed for solar installation. Solar investments could enable retailers not only to power their own stores but, if they generate sufficient electricity, to also sell power to the grid, tenants, neighbouring properties or consumers which, when combined with tax incentives and solar renewable credits, can lead to lower operational costs.

Battery

Developments in battery storage, driven by technological advancements in consumer goods such as mobile phones and electric vehicles, have also made the cost of this technology more affordable. The increased affordability of batteries for the storage of electricity, generated through renewable methods, opens the door to arbitrage energy as another option for smart retailers and landlords. Battery storage would enable landlords to not only store the energy they have generated through their renewable installation for later use but also to buy electricity from the National Grid during off-peak times, such as overnight, to store the electricity for use in running their retail units during peak times, to charge their own fleet of vehicles and/or to provide electrical vehicle charging points to customers (in support of the drive for electrical vehicles by 2030) to make profit.

Benefits

The benefits of renewable technologies stretch beyond immediate savings on energy bills and arbitrage energy profit streams. Consumers have come to expect the retailers and brands they use to support and tackle social and environmental issues. By leading the quiet revolution in embracing renewable technologies, retailers are enhancing their brand value. For landlords, this can have a wider impact as tenants become conscious of consumers’ expectations and look for premises which will enable them to embrace a more sustainable ethos. By helping to reduce energy bills, landlords can also strengthen a tenant’s financial position which will help keep the premises occupied and rental income flowing.

Through their Future Energy Scenarios publications, the National Grid have indicated that in all possible future scenarios for UK energy production, decentralisation of energy generation and usage will increase. With the push for more low-carbon energy production, decentralisation will naturally increase through the uptake of small-scale renewable energy generation systems, such as solar and wind turbines, and will lead to fewer direct connections to the transmission network. This anticipated increase is likely to change how the National Grid invests in infrastructure – being ahead of the curve by moving to more locally managed systems could mean that there is less competition for necessary investment.

"Solar investments could enable retailers not only to power their own stores but to also sell power to the grid."
“Solar investments could enable retailers not only to power their own stores but to also sell power to the grid.”

Investment in renewable energy technology is not limited to only larger retailers and landlords. Through consortiums, SPVs and PPAs smaller landlords, high street retailers and local shopping centre occupants can, through joint investment, use their collective buying power to reap the benefits of investing in renewable energy.

Obligations

In light of the imminent need to start compliance with Phase 2 of ESOS, it is important to mention that for larger organisations (those employing 250 people or more, or with an annual turnover of over £38.9m and an annual balance sheet total in excess of £33.4m), there is an obligation to carry out audits of the energy used in their buildings, industrial processes and transport to enable identification of cost-effective energy savings measures. Compliance with ESOS Phase 2 obligations must be reported to the Environment Agency by 5 December 2019 with a reflection on 12 months of verifiable data, failure to do so runs the risk of fines and enforcement action. While ESOS is mandatory, implementation of any identified energy saving opportunities is not, however failing to implement reduces the Scheme to a costly compliance exercise rather than a real opportunity to embrace energy efficiency, create an energy conscious culture and achieve real savings.

It is clear that businesses will need to be open and pragmatic in their approach to embracing low-cost, low-carbon electrical generation. The government will need to review the current legislation and incentive schemes to encourage the uptake of energy storage devices to create the decentralised, locally managed electrical networks envisaged by 2050.

By being early adopters of renewable technology to power retail sites coupled with energy storage and flexible demand/usage the retail industry could get ahead of the trend in reducing imported energy, which in light of indications from the NIA is one key element of future proofing the industry.

Act now

For more information about making sure you are energy compliant in an ever-complex legislative environment, contact Brian Farrell at Ashfords on b.farrell@ashfords.co.uk or +44 (0)1392 333834.

Ashfords LLP
Ashford House
Grenadier Road
Exeter
EX1 3LH

Email website@ashfords.co.uk
Phone +44 (0)1392 333757

Ashfords LLP
1 New Fetter Lane
London
EC4A 1AN

Email l.workman@ashfords.co.uk
Phone +44 (0)20 7544 2406