Achieving Net Zero: Onsite Solar as a Form of Carbon Offsetting

Net-zero carbon commitments are emerging from different real estate investors every week at the moment. The whole industry appears to have got behind the movement and, while the scope can vary considerably depending on the guideline used, there appears to be a consensus that there will be a residual amount of CO₂ that will have to be offset in some way in the future.

It is not the intention of this article to get dragged into the debate over the credibility of offsets as a form of achieving net-zero carbon (although, there is a great summary of the various pros and cons here). In this article, we seek to understand whether onsite generation, namely commercial rooftop solar PV could help real estate investors to achieve their net-zero carbon emissions, beyond simply reducing their Scope 2 or 3 emissions via onsite self-consumption.

Almost every commercial rooftop solar PV system is sized to export a portion of the generated electricity to the grid. The volume of exported electricity, as a proportion of total generation will vary from site to site depending largely on the export tariff available in that jurisdiction, as well as the export limit imposed by the grid. However, in the UK, and most other European countries, the ‘sweet spot’ in terms of maximising return on investment (ROI) tends to be around 10-20%.

New Dynamics – Carbon Abatement Potential vs. ROI

At Longevity Power we are increasingly seeing clients who don’t just want to explore the optimal system size in terms of ROI. Rather, they want to maximise the total capacity of the site to have the greatest impact in terms of carbon abatement. This has led to some feasibility assessments in which upwards of 50% of the generated electricity is forecasted to be exported to the grid.

Unsurprisingly, larger PV systems tend to lead to larger quantities of self-consumption. However, there is a point of ‘diminishing returns’ beyond which increasing the system size leads to a smaller increase in self-consumption. Based on our experience, a system sized for 80% self-consumption provides a good balance between achieving an impactful reduction in grid electricity procurement and carbon returns, while also providing an attractive project IRR and project NPV. An example of this is shown below, modelled off a UK based logistics asset.

Figure 1: Impact of PV System Size on Different Project Metrics

Naturally, the ideal solution in this scenario would be to co-locate the solar PV system with onsite battery storage. However, in the absence of additional income via services like grid balancing or energy storage arbitrage, the co-location of rooftop solar PV and behind-the-meter battery storage rarely makes good financial sense at a commercial scale (we’ll be covering this topic in more detail in a future article).

Onsite Solar’s Role in Carbon Offsetting – Not So Straightforward

So while the intentions of real estate investors who want to maximise onsite generation as far as possible are good, without extremely high onsite consumption, the chances are (for most logistics assets at least), that there is likely to be a large quantity of electricity exported back to the grid. In this scenario, what happens to this exported electricity? Sure, the landlord is remediated for the power that they export, but what does in mean in terms of their net-zero carbon strategy? If they were, for example, able to retain the Renewable Energy Obligation (REGO) certificates (also known as Guarantee of Origins in the Europe Union) associated with this exported power, it would make for an extremely credible form of carbon offset.

However, this is less straightforward than it might immediately appear. In most countries, the guidelines around whether landlords are able to retain these REGOs are extremely opaque. And based on our research it can depend upon the protocol in place for selling exported electricity. For instance, in markets where the landlord is required to sell exported electricity via a utility company (as in the UK), that utility company will typically want to retain the REGOs to package that electricity up as part of a green tariff. In other countries it can depend on the available subsidy scheme.

In short, the only way to establish whether the landlord is allowed to retain the REGOs for exported power is to carefully examine the market. A summary of some of our findings in key European countries below:

Country	Can the Landlord Retain Renewable Energy Certificates on Exported Powers
UK	Yes – Certificates generated by the PV system even under the SEG scheme
Germany	No – Certificates not generated for power exported to the grid under government subsidy schemes
Netherlands	Yes – Exported power under the SDE ++ subsidy still obtain renewable certificates on exported power
Spain	Yes – No direct subsidies available that impact renewable certificates on exported power

Figure 2: Treatment of Renewable Energy Certificates Across Selected European Countries

One thing is for certain though. In a sector where credibility is often questioned, REGOs for exported electricity surely represent one of the most credible forms of carbon offset going.

Longevity Power can support you in this field. We have worked with asset managers on their net-zero carbon strategies and have delivered solar PV feasibility studies and installations across Europe. For more information on our energy practice or net-zero carbon strategies, please contact Anthony Maguire at [email protected]