Harnessing Solar Power: A win-win scenario for clients and investors
Unlocking the potential of photovoltaics
What’s the Point?
The integration of solar power into industrial/logistics assets can offer a compelling case study on the potential benefits for both tenants and investors. With vast roof space, these facilities provide an ideal setting for photovoltaic (PV) systems, enabling the generation of renewable energy on-site.
In 2021, Hines acquired a logistics distribution center and retail space in Tiel, Netherlands on behalf of the Hines European Value Fund 2 (HEVF 2). The team recognized the potential for solar power and overcame challenges such as structural integrity, insurance concerns, and tenant cooperation obstacles to make it a reality. We reached a resolution that involved a slightly higher premium for the tenant's insurance but was offset by the substantial reduction in energy costs.
For clients, the installation of solar panels can yield significant reductions in energy costs. In the case of Tiel, with 4,800 solar panels installed in two phases, the Tiel distribution center is now electricity positive, reducing emissions and costs. This €1.59M investment generates 1.9 MW annually, with a payback period of seven years. This not only translates into lower utility bills but also contributes to the broader sustainability agenda, helping clients align their operations with global efforts to mitigate climate change.
Moreover, the structuring of the lease at Tiel allows clients to earn the offsets generated by the PV system. This arrangement essentially transforms the solar panels into a source of income, providing a financial incentive for clients to support renewable energy initiatives.
Investors, on the other hand, stand to gain from the added value that solar power brings to real estate assets. The successful implementation of the PV system at Tiel has led to an increase in the Internal Rate of Return (IRR), demonstrating the potential for solar power to enhance the profitability of real estate investments.
Furthermore, the adoption of sustainable practices can bolster the reputation of investors in the eyes of stakeholders. As consumers and businesses alike become increasingly conscious of environmental issues, investors who are seen to be proactive in addressing these concerns can differentiate themselves in the market.
The integration of solar power into real estate assets offers a win-win scenario for both clients and investors. Clients can benefit from lower energy costs and potential income from energy offsets, while investors can enjoy higher returns and an improved reputation for sustainability. The case of the Tiel distribution center serves as a testament to the potential of PV across the logistics asset class, and it underscores the possibilities for creating value in real estate through innovative and sustainable solutions.