Raising the roof on solar power

Innovative ownership lets investors harvest the full potential of rooftop solar farms.

Real estate investors and their tenants can help maximise their ESG commitments by having solar panels on the roof of their premises. A solar-powered solution developed by Dutch company VerusSol will give funds the edge over the rest, thanks to its innovative approach to ownership.

The traditional approach to going solar involves handing over your roof to a third party, who will set up the solar farm, sell the energy and pay you rent. “But if you take that approach, you are failing to make the most of your ESG potential, ignoring the extra yield you could generate and not giving your tenants the best deal either,” says Joost Leendertse, one of the founders of Amsterdam-based VerusSol.

In recent months, real estate investors have been stepping up when it comes to reducing their carbon footprints, says Leendertse. “Investors all have their own ESG teams, they are carrying out CRREM analyses to assess their current status and they are coming to realise that ESG and becoming Paris-proof is perhaps the most important issue facing their businesses.”

Green power generation falling short

Renewable energy generation has a key role in this, alongside energy-saving measures and boosting efficiency. But the approach firms are currently using to generate green power does not go far enough, explains VerusSol co-founder Michiel van Doorn. “Tenants are increasingly asking their landlords for more sustainable energy options, in an effort to reduce their energy costs and increase their marketing value in line with their Paris commitments or customer demand.”

Unlike the more traditional approach, VerusSol allows investors to keep control of their roofs and therefore maximise the ESG plus points. They, not a third party, are the owners of the solar farm SPV. They can also then pass on a range of advantages to their tenants, such as cheap or even free green energy and the ensuing reputational and marketing benefits that renting a carbon-neutral building brings further down the value chain.

The system is simple. VerusSol will set up a legal structure tailored to the fund or REIT without endangering their current status, organise the solar farm development using its network of approved partners, and deal with everything else. All the owner needs to do is come up with the initial investment in the technology, and sit back and reap the benefits. And if they decide to sell the asset, the solar farm becomes part of the deal.

“We are effectively taking on the role of the third party, but we are acting purely in the interests of the owner or fund and its tenants,” explains Leendertse. “Our system will boost yield enhancement and make the asset much more attractive because it is producing its own green energy at a constant and lower price than the current market. And that is particularly important given the instability on the energy markets at the moment.”

Tightening regulations

The rooftop rent model was good in its day because it worked, and it allowed owners to earn additional revenue from their roofs with no effort. Today, the rooftop rent compensation has come down significantly and green building regulations are becoming increasingly tight across Europe.

Under the terms of the EU Green Deal, for example, the European Union plans to be climate neutral by 2050. Given buildings are said to be responsible for 36% of CO2 emissions in Europe, the proposals will increasingly affect real estate business models, demand and financing conditions.

‘We are ahead of the curve on this,” says Leendertse. “The tools we use are well-known and conservative, but we are using them in a modern, evolved way. We are helping funds and owners to decarbonise and meet ESG targets. We are dealing with the green energy production as a partner, but it is the funds that own it, and end up with the additional yield in terms of rent and income and the happier tenants.”