The Crown Estate will have to pay as much as £1bn to make its estate greener over the next few years in order to meet carbon targets, indicating that the costs of the energy transition will be far higher than property owners have so far forecast.
“It is a moving target but it will be a substantial amount of capital over the next 5-10 years, not just in London but across our rural and regional estate as well,” said Robert Allen, chief financial officer of the sovereign’s property company.
The estate is aiming to be a net zero business by 2030, which will require decarbonising a portfolio including chunks of the West End and Regent Street in London, regional shopping centres, one of the largest land holdings in the UK and much of the country’s seabed.
Allen estimated it would cost between £500mn-£1bn to reduce emissions from the estate, which is managed in the public interest, returning profits to the Treasury which in turn allocates a “sovereign grant” to the Queen to cover the maintenance of various palaces.
A combination of rising regulatory standards and tenant demand have encouraged landlords to take action to make their portfolios greener. But the £1bn cost estimated by the Crown, which equates to more than 6 per cent of the overall portfolio value, is far more than most have earmarked.
“No one has the answer, everyone is guessing a little bit,” said Allen. “In two or three years time we’ll have a much better feel, having decarbonised some of the estate. We’re very much at the beginning of the journey,” he added.
The estate indicated signs of recovery from the coronavirus pandemic as it reported annual results on Thursday, generating £313mn in net revenue profit for the public purse in the year to the end of March, a £43mn improvement on the prior twelve months.
The value of the estate’s portfolio also jumped in the period, rising more than 8 per cent to £15.6bn, driven by a leap in the value of the company’s marine holdings.
The business has traditionally derived income from commercial property. But falling real estate values and booming demand for clean energy means the business is increasingly focused on the management of the seabed around England, Wales and Northern Ireland.
While the value of the estate’s London holdings was flat over the financial year at £7.7bn, that of the marine portfolio jumped 22 per cent to £5bn.
“The demand for marine space is greater than ever due to the need to strengthen domestic energy supplies and hasten the UK’s low carbon energy transition,” said the estate, which leases seabed rights to companies to develop offshore wind projects.
Those rights are in high demand from oil majors such as BP and Shell which have committed to pivot away from fossil fuels. According to the estate, offshore wind generation from wind farms on its land now power almost 9 million homes in the UK, equating to more than 10 per cent of the country’s overall electricity need.
