Electric Shock: How UK Property Is Facing A Major Power Problem

The UK is heading for an electric shock. Efforts to decarbonise the UK economy by 2040, the rise of electricity-consuming robotics and automation, and the growth of electric vehicles, are combining to put enormous pressure on a power infrastructure that is already stretched.

Some sectors of the property industry are feeling the heat, among them some of the best performing parts of the market, and niche sectors that could see their growth curtailed by a problem many in the industry don't even think about. The logistics and warehouse property world is among those most badly burned, and data centres face huge problems.

Amidst warnings that increased demand due to electrical vehicle charging could cause blackouts — just five Tesla vehicles charging simultaneously can consume the same amount of electricity as an office building — the UK property industry is fighting for its share of scarce electric power resources.

Is it winning the fight, or will establishing power connections at a price that means development is viable be the make-or-break issue for development in the 2020s?

Unviable Site Costs

Will Cooper is director in the building and project consultancy team at Savills. His job is to find the power for new logistics developments, and it is no easy task.

“The costs run into millions, and the delays into years of waiting,” he said. “We’re waiting on eight sites now. We’re being quoted a cost of more than £2.5M and a wait for three years to make a 4MV connection for a chilled warehouse, and it could be worse.”

Even more modest 350 to 400kVA connections can be a nightmare because making the connection involves an element of lucky dip, Cooper explained. “We need the system to be more transparent, so we know better what our options are. Today you have an idea where the electrical supply is available, and you apply for it then wait eight weeks and eventually you are told it will cost so many millions and take so many years.

“The complexity is that you haven’t really got a good idea of where the system capacity is until they tell you. And if another application for a new connection in roughly the same area went in five minutes before yours, then that will totally alter what’s available.”

The effect on development can be significant. “We’re talking about abnormal site costs here. A standard electricity connection might inspire some negotiation and a deduction from the cost of the land, but any number that looks abnormal and that won’t work. The effect is to make sites potentially unviable,” Cooper said.

Cooper calls for a more collaborative approach that involves more sharing of information with developers.

Long-Term Options

Meanwhile developers face an expensive dilemma: knowing that warehouse and industrial electrical needs are likely to grow, do they buy a large super-expensive future-proofing electricity supply today, or do they avoid the issue and leave it to future owners or occupiers to resolve?

More often than not, they prefer to avoid the issue.

“Today, if you bought an electrical connection sufficient to charge the batteries on a yard full of vans or lorries, that would mean doubling or tripling electrical capacity, which might make the entire development unviable,” Cooper said.

The ULI's Emerging Trends In Real Estate Europe 2020 report pointed out last year that logistics will be at the forefront of emerging technologies like electric, autonomous vehicles and automation. But lack of power might hold back the advancements in this sector and in these technologies.

"Instead of making a future-proofed electricity connection, developers install ducting in yards, and wait for others to finish the job," Cooper said.

Faced with these problems senior figures in the sector are fuming.

Cushman & Wakefield Head of Industrial Richard Evans goes one step further, questioning the entire distribution network, which is still based on 12 regional monopolies.

“There’s a driving need for more electricity in logisics, and the problem will only grow," Evans said. "The government needs to look closely at this, because we need more capacity today and we need even more for the future. The bizarre existence of monopolies in a market economy is very frustrating for developers and occupiers.”

The Electric Car Conundrum

Whilst the logistics sector feels the brunt of the problem, it is not alone. Increasingly loud complaints from motorway service station developers and operators about lack of adequate electricity connections reveal the risk of a nightmare world in which electric vehicles cannot use motorways. Service stations are painted as the place where electric cars will be charged, but how can they fulfil this role if they don't have adequate power?

Office developers and landlords face a smaller version of the same problem.

“The office buldings of today have completely different demands for electrical heating, electrical cooling, automation, data storage and mobility," Drees & Sommer UK Head of Engineering Marco Abdallah warns. "If you have an office building with full car-charging points it makes an enormous difference to electrical capacity. Just four or five Tesla car batteries being charged at once can consume as much electricity as a whole building.

“These are the kind of problems you can’t solve just by putting more transformers in the basement. It’s a grid problem that will take years to solve.”

Abdallah suggested that artificial intelligence, robotics and smart building management can help ease the problem in the short-term. The long-term solution could involve more sophisticated technical fixes.

“Of course we can be more efficient energy managers," he said. "For instance, don’t charge all your electrical vehicles simultaneously, or only do it when your homegrown power, solar or wind, is at its peak. But even then you still need bigger sources of power. That is why so many engineers and tech businesses are looking at intelligent energy management systems.”

The data centre business has a yet more dramatic solution to its astronomically large electricity demands: build your own power line direct from the power station, and cut out the National Grid entirely.

Data centre demand has rocketed. The growth of cloud storage is driving the inflation in electrical needs.

According to Cushman & Wakefield Data Centre partner Stephen Kirby as recently as 2010 data centres could operate at 10MW, roughly 20 to 25 times the electrical need of a  normal 100K SF warehouse. Today they might require 100MW, roughly enough to power a regional city. It could take five years and many millions to make the connection.
 
“The North American operators find it easy to put power and land together at home, but in Europe they both come at a premium, and marrying them is a challenge,”  Kirby said.

“Land with power can come at a significant premium. Maybe a multiple of three times the price for normal industrial land in London, five times in Paris, 10 times in Frankfurt. Maybe we won’t see multiples like that in the English Midlands, but sites with capacity in excess of 20MW are rare.”

The growth of near-to-urban data centres (called edge data centres), intended like last-mile logistics to cope with the most time-sensitive data needs, is adding to the problem. In crowded metropolitan areas, a 20K to 50K SF unit might need 2 to 5MW.

“We’re fishing for electrical capacity in the same pool as a lot of other land uses,” Kirby said.

Combine the lack of latent power in the electricity grid with the data centre operators desire for multiple sources of power (in case of disaster) and you have a problem that only a dedicated power line from the power station can solve. Operators are exploring this.

In the meantime, Kirby seconds Cooper’s call for more transparency. “You can never quite see where the electrical capacity is, where you would need new transformers, where you might need new substations,” Kirby said.

Don't Worry, Be Happy

Complaints about cost and delay have begun to make an impression on policymakers.

Just before Christmas 2019 the UK’s electricity market regulator Ofgem published the outline of a framework, called RIIO-ED2, that will control prices from April 2023. It is also intended to help deliver the so-called anticipatory investment required as the UK economy is decarbonised. A stable and predictable pricing regime will mean more investment in infrastructure, it hopes.

Told about property industry concerns, an Ofgem statement replied: “It’s concerning to hear that users are experiencing these issues. Ofgem has a number of measures in place to help ensure distribution network operators (DNOs) improve the service they provide to their customers.

“We expect distribution networks to connect customers in a timely and efficient way. This includes responding to customers’ specific needs whilst enabling competition. If the DNOs fail to engage properly, they could incur a penalty. “

Ofgem is also working on an Access and Forward Looking Charges code review, which it hopes will yield improvements.

“The development of better defined access rights could improve choice and lead to better-defined access choices that allow users to better manage the risk of curtailment — while still obtaining a potentially quicker and cheaper connection,” Ofgem told Bisnow.

The Energy Networks Association, which represents National Grid distributors, is also keen to offer comfort.

“The network companies are working collaboratively across industry to look at new ways to connect customers quicker and at less cost. They are now innovating to offer customers a range of smarter, flexible options to help to reduce costs and the time of connection,” Public Affairs Manager Peter Kocen said.
 
The distributors are also working with Ofgem to review queue management, meaning an attempt to address the problem of conflicting new connection requests in localities with high demand. This will be addressed as part of Ofgem’s Significant Code Review. Meanwhile the Open Networks Project aims to transform the way energy networks operate to create a smart grid to help deliver net zero carbon targets.

Is that enough to keep the property industry happy?

“Somebody needs to have a serious think about our power needs," UK Warehouses Association Chief Executive Peter Ward told Bisnow. "Today we haven’t even got to the point of knowing precisely what the problem is.

“We’re seeing operators waiting two years for a connection to the National Grid, and if we are being encouraged to automate and use robotics, that is obviously going to mean more power.”

Both the Ofgem and industry responses may be inspired by the knowledge that the National Audit Office is also looking closely at the UK's electricity networks and plans a major report early this year.

Many of those addressing electrical issues on behalf of the property industry remain to be convinced. They detect an electricity industry all too ready to ask others to find answers by changing their patterns of consumption, and relatively adverse to radical changes to the distribution network itself. If they are right, a long-term solution to the UK’s power network problem could be some way off.