Crown Estate profits from the windfall of the green energy revolution

The Crown Estate added £ 1billion to its portfolio value over the past year thanks to an offshore wind boom, the clearest indication yet that the monarch’s real estate company is expected to benefit significantly in the UK’s green energy transition.

The estate operates shops in central London, one of the country’s largest land portfolios, and the UK’s seabed in the public interest. It has traditionally earned the bulk of its income from the central London property, but a combination of the pandemic and the growing importance of clean energy looks set to redefine that role.

Like other big landlords such as Hammerson, Land Securities and British Land, it has been hit hard by the coronavirus, collecting only 81% of the rents due for the year and setting aside £ 54million to support tenants hard hit.

The poor performance of the stores reduced the estate’s holdings in London and regions by £ 1.1bn and helped push net profit down to £ 269m, 22% below the ‘last year.

But despite this, the overall value of the Crown Estate portfolio rose 7.5% to £ 14.4 billion in the year through March 31, 2021, as the company’s marine holdings, which include the seabed around England, Wales and Northern Ireland, have more than doubled in value. .

An auction in February drew record bids from companies, including oil majors such as BP, for rights to the seabed to develop offshore wind projects in English and Welsh waters, pushing the valuation of the seabed from £ 2 billion to £ 4.1 billion during the year.

The Crown Estate came under heavy criticism at the time from renewable energy organizations such as RenewableUK for the relatively modest amount of capacity made available in the seabed auction as well as its structure. Competition for rights was particularly fierce given the oil majors’ commitments to divert more spending to cleaner technologies such as offshore wind.

The auction was the first in Europe to involve an annual “option fee”, which winning developers pay over a period of three to 10 years before being replaced by a “rent” of 2% of revenue. business of a wind farm. Previous auctions involved a fixed annual option fee.

RenewableUK also warned that auctions executed on a similar basis “would ultimately result in higher costs for developers and consumers.”

Overall, the auction fees could bring up to £ 8.8 billion over 10 years to the Treasury, to which the estate pays annual profits. It will also be a boon for the monarch, who is allocated part of the profits by the Treasury via a “sovereign subsidy”.

Dan Labbad, managing director of the field, insisted that the role of the Crown in the development of the UK’s offshore wind sector was to “catalyze the construction of this market, rather than just maximize financial returns”.

But he acknowledged that, given the supportive government policy and the country’s need to reorient its energy mix towards cleaner energy sources, “there will clearly be a growth in the valuation” of the maritime portfolio.

Meanwhile, Labbad warned that more pain was likely to come for Main Street. The vacancy rate for the estate’s London portfolio fell from 4.7% to 8.2% during the year. “I guess it gets a bit worse before it gets better,” Labbad said.

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