The Crown Estate: the key to new energy generation

The Crown Estate owns and operates a variety of different assets, from agricultural land to leisure properties. But the business also looks set to make a vital contribution to the UK energy sector in the future. Nigel Hawkins explains.

It may see seem rather curious for Utility Week to analyse the fortunes of the Crown Estate. Although it is best known for its real estate associated with royalty – such as Windsor Great Park and Ascot racecourse – its overall value is underpinned by its formidable £12.4 billion property portfolio. In fact, the Crown Estate is technically owned by the reigning Monarch, but not in her private capacity.

The company describes itself – not overly modestly – as a “specialist real estate business with an actively managed portfolio of high quality assets in great locations”. And it operates broadly as a commercial business with its annual net consolidated profits – amounting to £329 million in 2016/17 – being transferred to the Treasury.

Pre-eminent amongst its property businesses are its widespread London assets, including the recently completed St James complex in the West End which was developed with Oxford Properties. This portfolio accounted for just under half of its 2016/17 revenues and just over half of its total operating surplus for the year.

The Crown Estate is also active across regional property markets; these assets yielded £95 million of revenues in 2016/17 and an operating surplus that was only slightly lower. In particular, a “ground-breaking” £140 million retail park at Rushden in Northamptonshire is being built whilst a joint venture with Land Securities is financing the large Westgate development – with 100 new shops – in Oxford.

Although the Crown Estate also owns various rural assets, its third leg is particularly relevant for the future of UK energy. Part of the £61 million revenues from this division in 2016/17, which also includes minerals and infrastructure, arises from its offshore activities.

Crucially, the Crown Estate manages the sea-bed around England, Wales and Northern Ireland from the mean low water level to the 12-mile nautical limit: it also owns over 50 per cent of the UK’s foreshore. Crown Estate Scotland manages similar assets north of the border. Hence, it is literally at the forefront of much UK offshore wind development, which has been boosted by the recent auction – an undoubted game changer.

Common challenges

With some offshore wind plants currently operating at up to £140 per MWh, it really was staggering that Dong Energy and Engie – two very large international companies – submitted winning bids for Contracts for Difference (CfDs) of below £60 per MWh, even if there were special circumstances.

Since the Treasury was looking for a fall to c£100 per MWh by 2018 – many thought this was optimistic – the recent auction seems certain to kick-start investment in offshore wind generation, which has undoubtedly come of age. The Crown Estate should benefit from this trend, especially in the English-facing section of the North Sea. Its head of energy development, Will Apps, summed up the current situation: “With our expertise in managing the seabed, we’re continuing to work closely with our customers to overcome common challenges and bring down costs, securing an important revenue stream for us and the UK’s position as a world-leading market.”

Last year, Crown Estate signed a major leasing deal with Denmark’s DONG Energy covering the 1,200MW Hornsea 1 offshore plant. Once built, it will provide enough energy for one million homes. Looking forward, as nuclear power costs soar, offshore wind looks very well-placed to fill much of the gap caused by the planned closure of all coal-fired plants by 2025 and the disinclination of major utility companies to build new gas-fired plants. And it may well be that Hinkley Point C – assuming it is eventually commissioned – will be the last-ever UK nuclear-powered plant.

Undoubtedly, the future for offshore wind generation looks bright – and the Crown Estate expects to be part of that mix. It is also the case that its sea-bed ownership rights are pivotal in other energy-related areas. Under-water gas and electricity pipes are obvious examples.

Despite Brexit, interconnection arrangements with other EU members are set to boom, as individual countries take measures to deal with anticipated capacity shortages. And, although it is early days, the Crown Estate may be further involved as wave and tidal schemes are gradually developed.

To be sure, the progress of many such projects, including the proposed Severn Barrage and the Swansea Bay tidal lagoon scheme, has stalled but they may eventually be revived: neighbouring foreshore and sea-bed access will be needed.

Given its impressive £12.4 billion property portfolio and irrespective of its other attractions, shares in the Crown Estate would be much sought after – it would be an automatic FTSE-100 entrant – if it were publicly floated: such a scenario in today’s testing political environment is improbable.

However, for the UK’s long-term energy requirements, the Crown Estate is set to make an important contribution in averting power cuts through its ability to facilitate offshore wind generation projects – and preferably those with capacities of over 1,000MW.