Powering logistics with solar

Joost Leendertse of VerusSol describes the challenges of solar applications in the logistics sector. Interview by Richard Betts.

The increased focus of the market on the environment and carbon reduction means that solar power is a key part of every alternative energy strategy. VerusSol aims to help and support companies in the logistic sector to make the most of their real estate by harvesting the true potential of solar whilst also making a positive contribution to meeting sustainability targets.

Given the increased focus on sustainability within the logistics sector, what are some of the key challenges in the market?

One of the key challenges in the market in terms of energy provision and reaching ESG goals is that there are three different parties involved: the tenant, the developer and the investor. This means that there are three different priorities, three different needs and potentially three different obligations or sets of rules to follow.

Looking at the integration of solar power, as an example, the tenant wants to have solar power but the lease of the building may be shorter than the investment period of the photovoltaic (PV) system. The owner cannot, in some cases, have an income stream from generating electric power and the developer may not want to invest in something they cannot effectively value.
To combine these three different needs is a real challenge to attaining ESG goals on logistic buildings

What are the different perspectives if we’re looking at the tenant, the developer, the investor and the asset manager?

The tenant wants to have benefits of green power for their own ESG goals, and also wants this to be as cost-effective as possible. The developer needs to create a green building with a BREEAM rating and so adds solar power by renting out the roof to a solar company and achieving a better return on investment. This is the classic model, but it can come under pressure in terms of the financing of the solar power when the building is sold.

The new investor, often a REIT, may be prevented by tax rules from having income aside from rent. This makes it difficult to benefit from the revenues related to the energy generated from the solar power units on the roof of the building. This income from solar power can be significant on the larger logistics buildings.

These challenges have been an issue for some time in the market. How do you help solve this, what point are you at in the market and what has the reaction been?

We have worked very hard in the last three years to make a model that helps overcome these different issues and provide the asset owner with full economic control of the solar power the property produces. It has been tested in the market and is now already live. The reaction has been very encouraging and we recently signed an agreement with one of the biggest logistics asset holders to work together on their whole portfolio of logistics distribution centres.

‘We are seeing both tighter restrictions at the European level and a drive at local government level to encourage big box logistics buildings to include solar power on their roofs.’

Joost Leendertse, VerusSol

Which markets are you currently focused on?

The solution can be applied across the UK and Continental Europe. At the moment we are focused on Northern Europe. However, we are also seeing both tighter restrictions at the European level and a drive at local government level to encourage big box logistics buildings to include solar power on their roofs and so we see a lot of potential in Southern Europe.

Is this solution something that really needs to be integrated at the development stage or is it also a solution for existing assets?

The most optimal situation is always as soon as possible within the design and construction phase of the building. However, it is also possible to include this as a solution after construction with only minor adjustments, assuming the quality and age of the roof are suitable

What’s driving the growth in the market? Regulation? Investors seeing that it’s an absolute requirement to build in ESG?

It’s driven by both the European and UK taxonomy but also the majority of the capital behind the asset holders is institutional capital and the institutions are increasingly only allowed to invest in green assets. A big box logistics warehouse without solar is not green. It is not taking out CO2, not reducing the carbon footprint. The focus on this area has really grown over the three years since we started working on creating a solution.

What was the catalyst to you seeking to find a solution to this specific problem?

At the time, the German REITs had significant problems overcoming these issues and so we were asked by a large German asset manager to find a model that could help create a solution. That was the starting point and then we worked in small steps, looking at every element from green financing, to the legal agreements as well as the quality of the components of the roof, the best products in the best combination and the exact angle of the solar panels to maximise the energy generated.

We are now producing 26% more energy than we expected because of this attention to the quality of components, combination and detailed research on maximising the energy generated from the logistic facilities.

In terms of the logistics sector generally is there going to be an increasing need for power with electrification of vehicles and increased use of robotics?

With the increased focus on same day delivery and demand for quicker fulfilment times from customers there is very little margin for error. Along with the issues around the availability of workers, this is likely to drive an increase in the use of robotics. This increases the use of electricity and we are already seeing this. A normal logistics facility of around 25,000 sq m would have required 1.7MW but now we are already seeing this increase to 10MW.

At the same time there is increased pressure from all sides to use electric vehicles, particularly for last-mile logistics. The larger lorries may use hydrogen but the rest will be electric. There will be more and more demand for electricity in the wider world and in the logistics sector going forward. The large logistics buildings will need solar panels to support the increased energy consumption on site without the need to disrupt the grid.